You have the deposit for your house purchase sitting in your bank, waiting to become part of what will help you buy your new home, but you’ve just been told that you need to prove where it came from – why?
When you first hear that you have to account for where your money has come from, it might feel offensive, intrusive, or just downright rude.
After all, it’s your money which belongs to you and that’s that, right?
Unfortunately, thanks to the actions of some, more unscrupulous, individuals, proving where the deposit for your mortgage, or funds for buying a house, have come from has become a vital part of the mortgage application and house buying process.
Proof of funds not only means the need to demonstrate that you have the money but that you can show where it came from and how. The reason for this necessity is because of the large amounts of cash involved and the fact that organised criminals commonly use property purchases as a way to launder money which has been gained through crimical activity or to finance terrorism.
For this reason, estate agents, mortgage lenders and conveying solicitors have strict money laundering regulations to abide by – and these rules apply to everyone who is making a house purchase, despite how uncomfortable these types of questions might make you feel.
When might you be asked for proof of funds?
There are several times during the house buying process where you might be asked for proof of funds and their origin. For example, an estate agent may ask for proof of ID, as well as proof of funds, because they need to know that you have a genuine and realistic interest in the property – this is in addition to meeting their obligation to prove no criminal activity has taken place.
A mortgage lender may need to see evidence of how the funds came into your possession to ensure that you won’t be required at some point to pay them back (again in addition to disproving criminal activity). This evidence can be taken via a review of bank statements or savings accounts, for example.
Conveyancing solicitors must also check the origin of funds, in order to comply with money laundering regulations, or risk a fine or imprisonment. Remember, estate agents, mortgage lenders and conveyancing solicitors are all separate parties, with their own obligations to comply with.
Additionally, in the circumstances where a cash amount has been given as a gift from a close family member, your conveyancing solicitor might require a legal agreement to be drawn up which details the terms and value of the gift, as well as confirmation that the amount never needs to be repaid.
It may all feel a little uncomfortable, but it’s vital in the fight against serious crime, to ensure that correct checks are made by everyone involved.
Which are acceptable sources of funding for a house purchase?
The UK Government realises that there are many different ways in which a person might find themselves in a position to put a deposit down on, or purchase a new home. Acceptable sources of this funding include the following:
- Personal savings
- Mortgage agreement in principle
- Sale of a property
- Equity release
- Gift from a close family member
- Inheritance
There are, however, other sources of funding, such as gifts from friends, or personal loans which are much less likely to be accepted.
For further information on whether your proof of funds is likely to be accepted, it is best to talk to your mortgage broker or conveyancing solicitor, in order to get an answer from an experienced professional.
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