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What Are Proof of Funds When Buying a House?

Martha Lott

Written by

7th May 2021 (Last updated on 3rd Jun 2021) 6 minute read

When buying a house, your conveyancing solicitor will need to see evidence of your deposit, usually in the form of a mortgage in principle or a bank statement that highlights the funds. 

You’ll also need to show where the funds came from, which is called source of funds. For example, if you’ve been gifted your deposit, the person who gave the deposit will have to sign a declaration to confirm it is a gift. 

Compare My Move work with property industry experts to bring you the latest updates in the property world. In this article, we share everything you need to prove your funds when buying a house, from what solicitors accept as evidence, to why you need money laundering checks.

This article will cover the following:
  1. What Does Proof of Funds Mean?
  2. Why Do You Need to Provide Proof of Funds?
  3. Who Needs to See Proof of Funds?
  4. What is Source of Funds?
  5. How to Prove Source of Funds?
  6. Money Laundering Checks When Buying a House
  7. What If The Funds are Coming from Outside the UK?
  8. What Happens If a Conveyancer Does Not Comply?
  9. Learn More About Conveyancing

What Does Proof of Funds Mean?

Proof of funds is showing your conveyancing solicitor and other third parties that you have the deposit available to purchase the property. Whether you’re a cash buyer or buying with a mortgage, you’ll still need to show proof of funds. 

The most common ways to show proof of funds are:

  • Mortgage agreement in principle
  • Bank statement of deposit if using a mortgage
  • Bank statement of full price of house if cash buyer
  • Evidence of sale of existing property 
  • Evidence of the deposit being gifted

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Why Do You Need to Provide Proof of Funds?

You need to provide proof of funds when buying a house so the purchase can actually go ahead. Proof of funds is just a way to show you have the deposit ready and can afford to buy the house. 

If you’re a cash buyer, providing proof of funds to your estate agent early on in the process should work in your favour. This shows you have all the funds ready to buy the property and will be able to carry out a quick sale. 

Providing proof of funds also means the solicitor knows you have the money ready for completion day to pay the solicitor fees, searches and taxes. 

Who Needs to See Proof of Funds?

Although your conveyancing solicitor takes care of the legal side of buying a house, you will be responsible for providing proof of funds to others who request it throughout the process.

Don’t be alarmed if you’re asked more than once to provide proof of funds. The following people are required by law to ask where your funds are from:

1. Estate Agent

Many estate agents will ask that you have a mortgage in principle when viewing properties, and once your offer has been accepted they will then ask for proof of funds. Some estate agents might ask for proof of funds early on to show you’re a serious buyer, but you’re not required to do this until after your offer has been accepted. If you’re using a mortgage adviser, they can liaise with your estate agent to send over your mortgage in principle as proof of funds on your behalf.

2. Mortgage Lender 

You will need to show your mortgage lender proof of funds usually at the beginning of the process. This shows them that you can afford to buy the property so they can then lend you the mortgage amount. 

3. Conveyancing Solicitor 

You’ll also have to provide proof and source of funds to your solicitor. The seller’s solicitor will also require this as part of the process, but your solicitor should send this to them.

What is Source of Funds?

Source of funds is showing evidence of how you came to have the money for the deposit. This differs from proof of funds as you’ll need to show further evidence of the deposit.

Again, this is common for your solicitor and others to check this to eliminate any risk of money laundering.

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How to Prove Source of Funds?

There are many ways you can show the source of funds when buying a house. Most commonly people have a deposit from savings, the sale of their property or from a gifted deposit from their family. 

Savings - 

Savings can be your regular income or multiple accounts that you pay into monthly. You will need to provide 6 months bank statements that show your income and your savings going up to reach your deposit.

Sale of another property -

If you’re relying on the funds from the sale of your property as a deposit, you'll have to show evidence of the progress of the sale, usually via a status report from the estate agent handling the sale of this property.

Gifted deposit -

If you receive a gifted deposit from your parents or a relative, your solicitor will need them to sign a declaration to confirm the funds are from them. The person gifting the deposit will also need to confirm in writing that it is indeed a gift and not intended to be a share in the property.

The solicitor will also need to know their identity, how they have the money and why they are giving you the money.

Winnings - 

If you have won any money from premium bonds, the lottery or from gambling your solicitor will need to see the evidence that you’ve won this money such as a letter or email as well as the money in your account via a bank statement. 

Investment sales - 

Sales of any shares or investments can be used to buy a house. You will need evidence that you’ve sold your shares and then a copy of your bank statement where you’ve received the money from the sale.

Inheritance -

You can use inheritance as a deposit to buy a house. You’ll need a copy of a letter from the executors showing how much inheritance you are receiving as well as a bank statement to show the inheritance being paid.

Pension - 

If you’re buying a house with your pension, you’ll need to provide a copy of your pension statement as well as a bank statement to document the funds arriving at your bank account.

Money Laundering Checks When Buying a House

Anyone buying a property in the UK must comply with Money Laundering Regulations. As huge sums of money are being transferred daily within the property market, the conveyancing industry can be a target for money launderers. 

Your solicitor will carry out money laundering checks as part of the conveyancing process. This will happen at the beginning of the process to prove that the funds you are using are safe and legitimate.

This means as well as providing proof and source of funds, you’ll have to provide proof of your identity and address to show your solicitor you are who you say you are.

We’ve broken down the examples that are accepted as proof of identity and address below.

Documents to prove identity:

  • UK/EU photo driving license
  • Passport
  • Residence permit
  • HMRC tax letter
  • State pension 
  • Benefits letter

Documents to prove address:

  • Bank statement
  • Utility bill 
  • Latest mortgage statement
  • Council tax bill Rent card or tenancy agreement from your local authority

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What If The Funds are Coming from Outside the UK?

If your deposit or funds are from an overseas bank account or being gifted from outside of the UK, you will need to check if it can be accepted.

If your deposit or funds are coming from an EU or European Economic Area jurisdiction, then this is regarded as a trusted source of funds, as the bank will have to adhere to European Union directives or face a penalty. 

Deposits from the following areas are usually accepted:

  • EU
  • Iceland
  • Lichtenstein
  • Norway
  • Switzerland

If the funds are coming from non-EU sources and won’t be monitored with the same directives, it’s unlikely this would be accepted as a legitimate deposit under money laundering rules.

What Happens If a Conveyancer Does Not Comply?

If conveyancers don’t carry out the correct anti-money laundering checks by asking for proof and source of funds, then they are at risk of being fined or could even be imprisoned. 

Learn More About Conveyancing

This article has been part of our conveyancing guide. In our next article, we explore conveyancing for new builds. To learn more, read how does conveyancing work for new build homes.

Martha Lott

Written by Martha Lott

Having written for Huffington Post and Film Criticism Journal, Martha now regularly researches and writes advice articles for everything moving house related.