Why do we need to provide proof of funds for house purchases?
When purchasing a house, it is essential that a purchaser is able to provide proof of funds to their solicitors. In order to comply with anti-money laundering regulations, it is necessary for solicitors to carry out the necessary checks to establish the source of funds being utilised towards the purchase of a property.
Providing source of funds is a very important part of the conveyancing process – if you are unable to do so, the transaction cannot proceed. The reason for this is that conveyancing is a process where huge sums of money are involved and therefore can provide an opportunity for fraudsters and criminals to attempt to launder money acquired by criminal activity.
What is acceptable Proof of Funds in the Conveyancing process?
It is not sufficient to merely provide a bank statement showing a balance for the sum required for the purchase, as we need to see how the funds were accumulated. You can demonstrate this by producing bank statements showing the build-up of funds over time from savings, wages, pension payments, rental income, etc.
We need to see a trail of where the funds are coming from. For example, if funds are being transferred between accounts, then we will also need to see those bank statements showing the funds being credited and debited from the accounts. Additionally, if lump sum payments are made into your account, we need documentary evidence for the source of funds. So if, for example, they are proceeds from a sale of a property, a completion statement or letter produced by the solicitors who acted in the sale will usually be sufficient.
If the money was given to you as a gift from a family member or friend, then alongside your own proof of funds, your family member or friend will be required to provide their bank statements as we will need to check where their funds originated to prove their own source of wealth and funds.
If the money was provided through inheritance, we may ask for a copy of the Will, estate accounts, and proof of the money being transferred to you.
Examples of what proof we may ask for to prove Source of Funds:
1. Gifts:
If some of the money comes from parents or relatives (or anyone else), we will need them to sign a declaration confirming how much they have given you. They will also need to confirm to us in writing that this is an outright gift and not a contribution towards a share in the property. We will need to contact them directly to get these confirmations and also check:
· Their identity
· The source of their funds
· Why they are giving you the money
2. Wills and Inheritance:
If you have received money from the Will or estate of a relative, we will need confirmation in writing from the solicitors that dealt with the estate. We will also need a copy of the letter from the executors/solicitors stating how much you are being paid as a beneficiary and a copy of your bank statement showing the money being received.
3. Savings:
If you are using money saved up over a long time then we will need to see bank statements to show the balance building up over a period of time.
4. Release of pension:
We will need a copy of your pension statement and a copy of your bank account statement showing the money being received from the pension company.
5. Sale of shares:
We will need a copy of the share release schedule and a copy of your bank statement showing the money being received from the company.
6. Dividends from the UK company:
We will need to see a copy of your Dividend Certificate, a copy of your company’s accounts, Certificate of Incorporation and a copy of your bank statement showing the money being received from the company.
7. Compensation award:
A copy of your letter confirming your compensation settlement from a solicitor and a copy of your bank account statement showing the money being received from the third party.
When looking to prove the source of funds it may feel like you are being interrogated and made to feel guilty about having funds to purchase a property. Sadly, this is the world we live in now and it is your responsibility to prove the money did not come from the proceeds of crime.
Although this may feel unfair, the potential for fraud within conveyancing is extremely high, and therefore, it is essential that we are careful and comply with our regulators. Please do not be offended when asked to prove your source of funds and wealth; just look at it this way: the sooner you provide the information, the quicker your Conveyancer can make progress with your purchase.
If you have any questions about Proof of Funds or any other aspect of buying or selling a property, Contact Us or call our Conveyancing Team at the Cleveleys Office Tel: 01253 824216