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. Alternatively, money launderers can locate a lender to complete a buy-to-let mortgage, and then launder money through the revenue generated by rent instalments.
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.
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.
Depending on the amount of your savings, lenders may want you to provide bank statements for the past 6 months or even longer period of time. If there is any large lump sum deposit, it is always advisable to provide evidence to prove the original source of the money.
It is also 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.
If your deposit is inherited by you from your family members, relatives or friends, you clearly will need the relevant probate documentation at hand, like copy of the will, solicitors’ confirmation, so that lenders can verify your account.
Gifts from family or friends
With the property ladder becoming more and more unreachable to first-time buyers, more people are resorting to family members and friends’ support. This is normally made by way of gifts 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.
Lottery and Compensation award from the Court
If you are lucky enough to have won a lottery or are an innocent party and have been awarded compensation from Court proceedings, you will need the relevant paperwork to prove the source of the lump sum payments. These evidence can be any payment receipt or confirmation from the lottery authority, Court judgment or relevant proceeding papers.
Using a Credit card?
You will have no problem of proving the legitimate source of the funds. However, it should be noted that any funds from your credit card is in fact debt owed by you to the credit card issuer. It is unlikely that your lender will accept it as your deposit.
In the meantime, credit cards are frequently used by fraudsters to commit crimes. 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.
Therefore, our advice is: if possible, avoid them.
Still living in the shadow of your ex?
Your ex can have a longer affect in your life than you may have realised, even after you both have signed a clear-cut agreement drafted by your solicitors. You may have opened various accounts and signed agreements jointly in the past.
They can be credit card accounts, utilities accounts, entertainment accounts or even other junk accounts, which you have never used or accessed for ages and completely forgot about them.
Being linked with an ex-partner means that their spending, credit record and the way they use those accounts can potentially affect your credit rating, in particular, if they are not careful with their money and have had judgments against them.
If you believe you may still be linked to an ex-partner in relation to the above accounts, you need to immediately de-link yourself from her/him by checking whether you can close those accounts, removing yourself from them or put limit on those accounts. You should also contact credit reference agencies and explain the situation to them if needed.
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.
Although it is not necessarily the case that your mortgage application will be denied if you are not on the electoral roll, it will clearly be a bonus if you can put yourself on the register.
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:
- At least 2 years’ certified accounts
- SA302 forms / tax year overview (from HMRC) for the past two or three years
- Evidence of contracts which are upcoming (if you are a contractor)
- Proof of dividend payments or retained profits (in the case of 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.
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