In the UK, property buyers must adhere to stringent anti-money laundering (AML) regulations. The intention of this is to prevent the misuse of the property purchase for illicit financial activities by criminals. Understanding and complying with AML checks are essential for a smooth mortgage application process.
Money laundering is used by criminals to hide the origins of illegally acquired money in order to make it seem legitimate. The National Crime Agency estimated in 2019 that serious and organised crime costs the UK economy at least £37 billion a year.
As a result, money laundering is taken very seriously due to the frequency with which criminals attempt to purchase property to ‘clean’ the proceeds of criminal activities. The UK is particularly vulnerable to money laundering due to the size of the property market and the sums of money involved when it comes to property assets.
If you are thinking about buying a property, it’s a good idea to ensure that you are prepared to be able to prove your identity, that you can prove you have the funds required to purchase, and that you can prove where the money comes from.
Let’s discuss the various stages of AML checks, why they are important, and what information you need to provide.
What information do you need to provide in AML checks?
Homebuyers need to provide a range of information when it comes to the mortgage process. The three stages of AML checks include proof of identity, proof of funds and source of funds. This is a legal requirement for your solicitor when you are buying a property.
Proof of identity
Perhaps the most basic thing you need to prove when you are buying a property is that you are who you say you are.
- Name
- Date of birth
- Current address
You can use any of the following documents to prove your name and address:
- A current passport
- Residence permit
- UK/EU driving license
- A recent bank statement
- A recent mortgage statement
- Your biometric residence permit (BRP)
- A recent tenancy agreement with your local authority
- A recent utility bill
- Benefits book/state pension letter or notification
Proof of funds
As well as proof of ID, you will also be asked to provide proof of funds at various stages in the process. So how can you do this? Let’s examine the different ways in which you are able to provide proof of funds when purchasing a property.
When you are buying a property, you will be required to prove that you have the money required to purchase the property. This is a requirement for your estate agents, lenders and solicitor/conveyancing agent. Failure to do so can mean that they could be fined or imprisoned.
A good way of proving that you have the funds available is to get a mortgage in principle agreement from your lender. This is done by filling out an online form which will then confirm your ability to afford a property. It may be a good idea to do this before you start the process of buying a property. Overall, the following are some of the best ways of providing proof of funds:
- Mortgage in principle (MIP) agreement
- Bank statement with required funds for buying with cash
- Bank statement with required funds for buying with a mortgage
- Letter of proof if the deposit is gifted
- Evidence of a property sale being used to fund your purchase
Source of funds
Finally, there will also be a requirement for you to evidence your source of funds. This differs from proof of funds in that rather than simply proving that you have the funds, proving the source of funds means showing how you acquired the money for your deposit. So how can you prove the source of funds when buying with a mortgage? Here are some of the most common methods.
Personal savings
Personal savings are the most common way of putting down a deposit and usually consist of regular small payments from your salary of other types of income. As your conveyancer, we will usually require 6 months’ worth of bank statements. If you have savings in any other accounts, you will also have to provide the last 6 months of bank statements from these accounts.
Wills and Inheritance
Inherited funds from your family members, relatives and friends will be subject to the relevant documentation such as a copy of the will or a letter from the executors which confirms your entitlement.
Gifts from family or friends
Financial gifts are increasingly common given the current state of the housing market and the difficulties many people have getting on the property ladder. Naturally, your conveyancer/solicitor and lender will question a large lump sum of funds which arrives in your account. You will therefore have to both provide evidence that the money has come from a legitimate source, as well as that it was given to you of their own volition.
The person gifting you the money will be required to sign a declaration which confirms how much they have gifted you. They will also have to confirm that the funds are a gift and not a loan, as well as that the person won’t be entitled to a share of the property.
Different mortgage providers will have different requirements for gifted deposit so it is important to check this if you are receiving a gift to pay for your deposit.
Property sale
If some of the money comes from the sale of a property which has already been completed, we will usually require a completion statement to confirm that the sale has gone through. This will not usually be necessary if you are using us as your firm for both the sale and purchase.
Pension lump sum
When it comes to the use of a pension to pay for a deposit, a copy of your pension statement will be required, as well as a copy of your bank statement which displays the receipt of funds.
Winnings
Finally, if you are lucky enough to have won your money, either through gambling, the lottery, or through premium bonds, you will need to prove this by showing evidence of the winnings as well as your bank statement in order to confirm receipt.
Final thoughts
Please note that you may not be able to fund your purchase with funds from abroad, as the majority of countries not in the EU won’t pass the AML checks. You should check the position of your chosen solicitor on this matter as early as possible.
As a law firm with a dedicated conveyancing department, we have a number of qualified conveyancing solicitors and conveyancers. They will be able to guide you throughout the process, as well as provide more information about the areas covered in this article depending on your individual circumstances.
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