There’s a legal requirement for extensive identification and money laundering checks when buying a house. Residential Property specialist Olivia Sweet explains why.
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Organised criminals have long seen the UK’s property market as a ready way of laundering the proceeds of crime. This is because the high value of property means large sums can be ‘cleaned’ in a single transaction. For that reason, when you are buying a property, professionals and organisations involved in the transaction are under a legal duty to ascertain the source of your funds.
So high is the potential risk of money laundering in the property market that the original Money Laundering Regulations (MLR) have been subject to multiple amendments since they originally came into force in 2017. These amendments have included additional high-risk factors for professionals to be alert to when assessing the need to request further information and evidence.
Who carries out money laundering checks?
On a residential property purchase, money laundering checks are carried out by the seller’s estate agent, your mortgage lender and your conveyancing solicitor. Although they are all involved in the same transaction, each must independently comply with the MLR. We understand that being asked for information and proof of your source of funds on multiple occasions can be frustrating. However, please be patient with us and understand that failing to carry out money laundering checks is a criminal offence, potentially carrying a custodial sentence!
In fact, if you keep all your evidence together, it’s relatively easy to produce it each time somebody needs to see it.
Proof of identity
The Solicitors Regulation Authority requires us to check all clients’ identities, irrespective of why they instruct us. This is in addition to the requirement to prove your source of funds. Therefore, you will receive from us a Client Due Diligence Form to complete and return with the required documents.
How to prove source of funds
Proving your source of funds can be complex and must be dealt with on a case-by-case basis. Remember, we cannot proceed with your transaction until we are satisfied that our proof of fund requirements are met. The process begins with us sending you a Source of Funds Questionnaire.
Common sources of funds are:
Savings are usually the result of regular small payments from your salary or another source of income. If you are utilising savings to fund your purchase, we will require evidence of your savings in the form of bank statements or savings account statements showing the funds accumulating over time. Initially, we request statements for the last six months.
It’s common for a relative (usually a parent or grandparent) to gift some or even all of the deposit monies, particularly for a first time buyer.
If you are receiving a gift from a relative or anyone else, we will require that person to sign a declaration confirming the gift and, in addition, that they will not have any interest in the property. We will also require evidence of the source of those funds as well as identification documents from the donor. Where you indicate that there is to be a gift, we will write to the donor directly to request the required information.
If you are buying with a mortgage, your mortgage lender will contact us with confirmation of the mortgage offer in due course. However, the seller’s estate agent will require evidence of a mortgage offer in principle if you have one.
We will require evidence if your proposed purchase funds include money inherited under the terms of a Will or intestacy. This may be by way of a statement or letter from the solicitor dealing with the estate administration confirming the monies due to you and your bank statement showing the transfer of the funds into your account.
Winnings and Windfalls
If you have won money on the lottery or on the premium bonds, for example, we will require a bank statement showing those funds and the payment going into your account.
Help to Buy and Lifetime ISAs
If you have a Lifetime ISA or Help to Buy ISA, please let us have a statement showing the current amounts held by the ISA provider. We will require you to complete several forms to deal with the drawdown of funds/bonuses in respect of the ISA.
If you are acquiring money from any other sources to assist with the purchase of the property, please provide us with as much information as possible so that we can advise of any further details or paperwork that we will require.