Source of Funds Check

Why am I being asked about this? 

We are required by the anti-money laundering legislation to check where the money is coming from to buy the property.  This can be from savings, mortgages and gifts from relatives, inheritances etc, and this is called a “source of funds” check.

We are also required to check that your general income and wealth is consistent with your lifestyle and the value of the property you are buying.  This is called a “source of wealth” check.  We will ask questions about your salary, request bank statements and ask you to give details of any family inheritances.

Please do not think that this is an invasion of your privacy, as all conveyancers have to do this.  How much information we need to look at depends on the circumstances i.e. the amount of money involved and the value of the property.  Also, (where appropriate) the position in society or business of you, your associates or any members of your close family, will need to be looked at in detail.

Your mortgage lender will also expect us to check some details, to make sure that the information you gave them on your mortgage application is accurate.  For example; your lender will need to be told if you are not providing all the money yourself.

It is important that you tell us about this in plenty of time before we start work, so that we have time to get the confirmation and documents that are needed.

 

Our Obligations:

We have to check how you are going to pay for your house because: -

1. Anti-money laundering legislation requires us to check where you are getting the money from to buy your new home.  This is usually a combination of mortgage, savings, gifts from relatives and the money from selling your previous house.
2. Any mortgage lender will also want to check what you have told them when you applied for your mortgage is correct.  They would particularly want to know that there are no other loans being used to buy the property.
3. We need to make sure that you will have enough money available on completion to pay for all the taxes, searches and costs of moving home.  Once you have exchanged contracts then there is no going back.  If you then realise that you have not got enough money to complete the purchase you could be sued by the seller for any costs and losses if the sale falls through.

 

Gifted Deposits or Reductions in the Price:

If the seller is agreeing to accept less than the market value of the property this is really a reduction in the purchase price.  We will need confirmation from the seller’s lawyer that the seller will never expect payment of the unpaid amount in the future.  The legal transfer of the land will need to stay at the actual price paid.  Your mortgage lender will need to be told about the situation and they will need to approve this.

 

Money from the sale of another property:

There is no problem if some of the money comes from the sale of a property where we dealt with the sale of the property for you.  If another conveyancer dealt with the sale of the property, then we will need evidence from them, such as the completion statement for the sale.

No payments direct to the seller or cash:

All monies for the property has to be paid through us and you cannot pay any part of the purchase money direct to the seller, nor can you pay us money in cash towards the purchase price or any of the costs involved.

You cannot give part of the purchase price or a deposit to the estate agents either.  Small “reservation deposits” on a new build house purchases are permitted, provided that they are not substantial amounts of money.

 

Examples

1. Gifts:

If some of the monies is coming 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 directlu to get these confirmations and also check:

• Their identity
• The source of their funds
• Why they are giving you the money

2. Money from other sources:

We cannot accept money from anyone except you and your mortgage lender.  We will need to see bank statements to see where the money is coming from.

3. 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.

4. 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.

5. 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.

6. 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.

7. Dividends from the UK company:

We will need to see a copy of your Dividend Certificate, a copy of your company’s accounts and a copy of your bank statement showing the money being received from the company.

8. 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.

Why is cash not allowed?

We do not accept cash payments towards the purchase price as it is almost impossible to prove the source of funds.  If you have a large sum of cash and pay it into your bank account then you will also struggle to prove the source of those funds.  If the source of the cash is not any of the examples above then please speak to your conveyancer.

Guilty Until Proven Innocent?

When looking to prove the source of funds it may feel like you are guilty until proven innocent.  Sadly, this is the case and it is your responsibility to prove the money did not come from the proceeds of crime.

Although this may feel unfair, there is so much fraud within conveyancing it is essential that we are careful and comply with our regulators.