Being asked for evidence of where your finances have come from is never a pleasant or easy thing to hear and believe us it is not a request that we love to make. After all you are only trying to do something straightforward like purchase a new home, or provide a gift to a loved one, maybe you are only trying to purchase something which is not even of great significant value.
The aim of this article will be to explain why we insist on asking for evidence of your source of funds and to provide a brief list of the standard documentation we will require from you in addition to whether you are using Help to Buy or receiving a gift. It is my hope that this article will explain why both parties need to comply with money laundering regulations and reassure you.
Our duties and obligations when acting in a property transaction:
The simple answer is that it is our duty to make these requests as part of anti-money laundering legislation. Under Regulation 27 and 28 of The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, law firms have a duty to undertake customer due diligence which means we must obtain proof of our clients identity and the source of funds that they are using in the proposed transaction.
In addition to the anti-money laundering legislation we also have a duty to your mortgage lender, if you are using one, to ensure that we have checked your identification and source of funds. This not only works against preventing money laundering, but it also confirms to your mortgage lender that the details provided on your mortgage application are true and accurate. An example of what your mortgage lender needs to be aware of is if you are receiving a gift or if you have paid a substantial reservation fee for a New Build property. The aim of having these obligations is to stop criminals using law firms/legal professionals to launder money.
The UK Government provided additional guidance to solicitors in January 2021 in reference to obtaining source of funds by also providing a source of wealth check. This check requires us to ensure that your general income and wealth is consistent with the value of the property you are purchasing and that the overall property transaction makes sense. Money laundering in the UK has increased significantly from £40 billion in 2018 to £100 billion in 2021. To reverse this upward trend the Government has made this additional change to try and combat this problem.
After reading the above you may feel that this is a complete invasion of your privacy and that you do not wish to provide this information under any circumstances. Although we do sympathise that we are asking for a lot of private information you will find that every solicitor will make this similar request to fulfil our obligation under the anti-money laundering legislation.
What we will require from you to satisfy our ID verification and source of funds requirement:
Here is a standard list of what we would require from you if you are purchasing a property:
- Valid photo ID: this can be a valid Passport or UK Driving Licence.
- Proof of Address: A utility bill or bank statement dated from the last three months showing your name and full address.
- Proof of funds: If you are using funds contained in a bank account, we will require six months’ worth of statements showing the funds accumulating. If you are not using funds contained within a bank account we will therefore require an official statement from a solicitor or financial broker showing the evidence of the recent transaction i.e. a property sale, share/stocks sale, a Will bequeath; or if the funds have come from a business we will require a recently filed business account statement.
Please note if you are utilising the Help to Buy scheme or if you are receiving a gift, you will be required to provide further documentation.
What if I am using the new Help to Buy scheme in my property purchase?
Under the new Help to Buy Scheme the Government have requested further information from you when utilising their scheme for the purchase of your first home. The significant change being the requirement to provide original/certified copies of your ID and source of funds. In regard to us obtaining ID verification from you we are currently using an app called Thirdfort which enables us to receive certified ID and proof of address.
A common example of the above is if you are using your savings towards your purchase, Help to Buy would therefore require either an original posted copy of your bank statements dated from the last six months or a certified stamped copy provided by your bank. Obviously original posted paper bank statements have become a thing of the past since most people use online banking. However, Help to Buy will not accept electronic bank statements to be used as original or certified copies of your source of funds since these can be easily manipulated. This leaves you with two options:
- You can request six months’ of bank statements to be posted to you by your bank; or
- You can go into your local bank branch and ask for certified copies to be provided directly to you.
What if I am receiving a gift in my property purchase?
If you are receiving a gift then in addition to providing us with your own evidence of ID verification and source of funds we will also require the same from the person providing you with the gift (i.e. your giftor). If you are also using the Help to Buy scheme, we will also require certified copies as stated in the above section. We will require the following from your giftor:
- ID photo verification: this can be a valid Passport or UK Driving Licence
- Proof of address: A utility bill or bank statement dated from the last three months showing your name and full address
- Source of funds: If you are using funds contained in a bank account, we will require six months’ statements showing the funds accumulating. If you are not using funds contained within a bank account we will therefore require an official statement from a solicitor or financial broker showing the evidence of the recent transaction i.e. a property sale, share/stocks sale, a Will bequeath; or if the funds have come from a business we will require a recently filed business account statement
- Signed paperwork confirming the donor will not have a legal or beneficial interest in the property as a result of providing the gift to you
The New Build team at Lewis Denley are highly experienced in dealing with Help to Buy transactions and have an excellent relationship with key developers such as Barratt Homes and Berkeley Homes to name a few. Over the course of the past year the team has been successful in handling a sharp rise in New Build purchases using the Help to Buy scheme and are proud to have maintained our excellent levels of client satisfaction.
We provide experience along with a fresh innovative approach to ensure your first property purchase runs smoothly. If you are looking to take your first step in the property market using the Help to Buy scheme, please get in touch with a member of our team.