Financial checks when buying a property 

When your offer on a new home is accepted, you will probably want to get things moving quickly. Before your solicitor can start work, there are some important checks that they must carry out to verify your identity and check your source of funds.

Sadly fraud has become an increasing problem in recent years, with professional criminals targeting conveyancers and home buyers in what are often very sophisticated scams. It can be easy to lower your guard in the excitement of buying your new home.

‘Your solicitor will need certain information from you,’ explains Rebecca Taylor, Solicitor at Crane and Walton Solicitors LLP. ‘Providing this can sometimes feel like a bit of a chore. However, these checks are a legal requirement and, in most cases, they should be relatively straightforward.’

It is a good idea to ask your solicitor early on about their requirements. They may have a form which sets these out succinctly and clearly. Generally, you will need to provide two types of evidence: proof of identity and source of funds.

It can help to view verification as a two-way process, and you should never be afraid to question your solicitor if something seems unusual or suspicious. For example, a favourite tactic of scammers is to send buyers an email, supposedly from their solicitor, saying their bank account details have changed. If you receive an email like this, do not send any money. Instead, telephone your solicitor straight away. 

Rebecca Taylor answers some common questions and explains what you can do to get your purchase off to a flying start.

I have already told my lender about my finances, why does my solicitor need this information as well?

During the home-buying process, you will have to provide financial information to several different people.

If you are taking out a mortgage, your lender will ask about your income, expenditure and investigate your credit history. This lets them check you can afford the mortgage repayments. The estate agent may also ask for information, for example, how you will fund your purchase. This is to check you can proceed with the purchase and it safeguards their client, the seller.

In addition, anti-money laundering legislation requires all the professionals involved in a transaction to be vigilant and to make certain checks. This includes your solicitor, who has a legal obligation to check your identity and that the money you are using to fund your purchase comes from a legitimate source. They will also need to satisfy the Land Registry’s requirements on identity checks when registering the transfer of ownership.

While it can be frustrating to have to provide the same information to different people, it is necessary. There is no need to worry about it, as your solicitor will guide you through the process.

What information will I have to provide to verify my identity?

Identity verification is generally the most straightforward. A current passport or photocard driving licence plus an additional document, such as a bank statement or utility bill, to prove your address will usually suffice. The latter will need to be up to date (usually no more than three months old). It should be original too, and a hard copy, not a print-off from an online account.

Your conveyancer may also ask you for your national insurance number.

If you are buying with a partner, then you will both need to provide this information individually. 

If you are buying through a company, you will need to show its beneficial owners.

If buying via a trust you may need to show evidence of the identity of all the parties involved, including potential beneficiaries.

What evidence will my solicitor need to verify the source of funds?

Satisfying the source of funds can sometimes be a little more complicated. In essence, it means showing where your purchase funds are coming from, because your solicitor needs to check this is a legitimate source.

The information required will depend on your individual circumstances. For example:

• If you are buying with the help of a mortgage, it could be your mortgage offer letter and bank statements showing your deposit. Those statements should also show how you have built your deposit up, for example, through savings from your salary, investments, or pension.
• If your purchase is funded by an inheritance, then it could be evidence of the original bequest.
• If you are using the proceeds of sale from another property, then it could be the completion statement and evidence of the completion monies being paid into your account.
• If you are purchasing through a company, you may need to provide details of how the company is funding the purchase. This could, for example, be through providing its audited accounts or evidence of a buy-to-let mortgage.
• Similarly, if buying through a trust, as well as showing the source of funds, for example via copies of trust accounts, you may need to provide proof of the identity of individual trustees and beneficiaries.

Cash is not king

Cash can give rise to several issues. Most solicitors will not accept cash payments, either towards the purchase price or expenses. Moreover, if your bank statement, which is evidence of the source of your funds, shows a large cash withdrawal or deposit, your solicitor may ask for more background information.

Funds coming from overseas, and gifts, may also require additional scrutiny.

Gifts and personal loans

If you are receiving a significant contribution to your deposit from a person who is not a party to the transaction, such as a relative, your solicitor may also need to consider their circumstances.

If it is a gift, the relative may be asked to complete a gifted deposit form. This gives more information about the origins of the funds and will usually also confirm the donor will have no claim on the property.

If it is a personal loan, your conveyancer may ask for evidence of the loan agreement and your lender’s source of funds. For example, if a relative is lending you the money, they may need to see evidence of their savings, just as they would if they were buying the property themselves.

Certain categories of people may also require additional checks as guidance identifies them as being potentially vulnerable. They include senior politicians, directors of state or international companies, senior military figures and judges.

What can I do to ensure my purchase proceeds quickly?

In most cases, these checks should not delay your purchase unduly. However, this depends on you being able to supply the requested information promptly. So, it is a good idea to collate this before making an offer.

You should also keep it regularly updated. Doing this should reveal any potential issues. For example, if you have recently married or changed your name, you may also need to include a copy of your marriage certificate or deed poll. If you are using the sale proceeds of a property held in your former name, you may need this to show the link between that and the funds in your current account.

If you are unsure of the requirements, or if your funding arrangements or personal circumstances are unusual, speak to your solicitor early on. As soon as your offer has been accepted, they can then get to work on your purchase.

Choosing a solicitor who is proactive, well-organised, and who makes the best use of modern technology will also speed up the process. They will still need information from you. However, they can carry out a lot of verification online, thus reducing the impact on your transaction.

Will these checks protect me against property fraud?

These checks are primarily about ensuring the legitimacy of your funds. However, the overall aim is to reduce the risk of criminality, creating a more secure property market and ultimately benefiting everybody. So, you could view them as part of an overall strategy to keep you safe.

But it is important to stay vigilant and to pay attention to your solicitor’s guidance, particularly when transferring funds. Your safety is their priority, and they should be able to reassure you or tell you what to do next to protect yourself.

How we can help

For further information and assistance, please contact Crane and Walton Solicitors LLP in Coalville on 01530 834466. Crane and Walton LLP also has offices in Ashby, Leicester and Melbourne.