Getting the approval for a mortgage on a property is a very tough thing to do for most people, especially in the current climate we find ourselves in. Often, a long time has been spent filling out forms and going over options with lenders and other professionals. Not to mention saving up the money needed for a deposit.

 

What is money laundering?

 

To give a brief summary, money laundering is the illegal process of concealing the origins of money obtained via illegal means. This is often done by passing the funds through a complex sequence of banking transfers or commercial transactions. The overall objective of this is to “clean” the money, as the illegal cash will be mixed in with regular money. In this way, the launderer can recoup their funds with legitimate money, while disassociating themselves with the “dirty” money.

 

How does this tie in to mortgages?

 

There are quite a few ways a mortgage can be used as means of laundering money. One way is by using laundered money as a deposit. Another is to simply overpay a loan. Another option for money launderers is to target a lender to secure a buy-to-let mortgage, and then launder money through rental income.

 

As an honest person looking into mortgage options, however, how should you avoid being suspected of mortgage fraud, and potentially damaging your application? Read on to find out.

 

Gifted deposits

 

A gifted deposit is exactly what it sounds like, a gift from a friend or family in the form of cash towards your deposit. This is clearly a wonderful and kind gesture, but there are a few things that you must take into account.

 

Firstly, it is understandable that a large sum of money being transferred into your account out of the blue will look suspicious. Money lenders and solicitors will always question where these types of transfers have come from. If you fail to provide a good answer, a money laundering investigation may be launched which will affect your mortgage application.

 

What you have to do is provide evidence that this money has come from a legitimate source, and was given to you freely. Evidence usually comes in the form of a signed letter from the person gifting you the money, stating that it is not a loan which will need to be repaid, but rather a one off gift. It should also state that this money does not entitle the person providing it any share of the property which it is going towards paying for. Your mortgage adviser can provide you with a document template if you are unsure, as can we here at Lisa’s Law.

 

Credit card deposits

 

A huge amount of fraud takes place using credit cards, in fact it accounts for 39% of cases in the UK.  Common types of credit fraud involve lost or stolen credit cards being used without the owner’s permission or knowledge, stealing credit card details and committing fraudulent applications using someone else’s identity.

 

This is in part why most mortgage lenders will refuse an application. They see payments via credit cards as risky, as they are essentially loans rather than outright payments. It is best to avoid using them.

 

Cut ties with your ex-partner

 

Being linked with an ex-partner means that their spending and credit record will affect how you look. This can be a big problem if they are not careful with their money, and can have a detrimental effect on your mortgage application. This is because mortgage lenders have to trust that you will be able to make your mortgage payments on time, and unpredictable spending can make you look unreliable.

 

If you believe you may still be linked financially to an ex-partner, contact credit reference agencies and explain the situation to them. They should be able to unlink the two of you.

 

Personal savings and inheritance

 

This is the most common way people put down a deposit and will usually be accepted by most mortgage lenders without many questions. It still needs to be verified that the money has come from a legitimate source, so make sure that you can prove your claim to the inheritance with documentation showing exactly where the money has come from, and have records of what account it has been in since it came your way.

 

When it comes to personal savings it is good practice to have payslips ready to be inspected, so that your income can me verified.

 

Also, for salaried staff, lenders sometimes carry out a background check against the employer to satisfy themselves that the employer does have the capability to pay the staff.

 

Register to the electoral roll

 

This essentially means you are registered to vote. Mortgage lenders must be able to verify your identity for purposes of anti-money laundering. If you are registered on the electoral roll, they will be able to see that you are really who you claim to be as it enables lenders to check your information, confirm your name, address and residential history.

 

Not being on the electoral roll is a sure fire way to have your mortgage application denied.

 

What if you are self-employed?

 

Self-employed people may have a few extra hoops to jump through when securing a mortgage because their income may vary from month to month. This makes them less reliable in the eyes of mortgage lenders. What if one month they cannot make a payment due to their business falling short? You can understand their concern.

 

Lenders will see you as self-employed if you own more than 20% to 25% of a business, which provides your main source of income. You could be a sole trader, company director, or contractor.

 

Proving your income as a self-employed person:

 

To prove your income when you apply for a self-employed mortgage, you will need to provide:

 

• Two or more years’ certified accounts

 

• SA302 forms or a tax year overview (from HMRC) for the past two or three years

 

• Evidence of upcoming contracts (if you are a contractor)

 

• Evidence of dividend payments or retained profits (if you are a company director)

 

For self-employed running business as a limited company, the lender will request for full annual accounts or CT600 or both. The lender will also look at the actual salary or dividend the applicant has drawn from the company together with the profit retained within the company.

 

 

Have questions? We are here for you!

 

In the meantime, we are operating as usual, and you can reach us on 020 7928 0276 or email in to info@lisaslaw.co.uk for any questions you may have on this topic.

 

Or, why not download our free app today? You can launch a new enquiry, scan over documents and much more.

If you have an iPhone, follow this link to download.

 

If you use an Android phone, follow this link to download. 

 

Find the link here if you need some further instructions on how to use our new app!