Buying a home is the most expensive purchase that most people will make. Therefore, it’s not unreasonable for a seller to want to know if you’re a serious buyer when making an offer on their home. This is often where estate agents come into play, acting on the seller’s behalf and checking proof of funds, which is part of the process of buying a house. Here, we have everything you need to know about why estate agents need proof of funds and what to expect as a buyer.
Do I need to show proof of funds?
The Property Ombudsman Code of Practice states that all agents must take reasonable steps to determine how much a buyer will pay for a property when they make an offer. Therefore, it is the agent’s responsibility to check proof of funds, as well as the source and availability of the funds when you make an offer on a property.
If you’re a cash buyer, they’ll want to see a bank statement showing that you have the required amount of money.
For buyers purchasing with a mortgage, agents will often ask to see initial proof that you have the funds available to afford the property. This will often come in the form of a mortgage in principle, action in principle or decision in principle. These show the agent that you are seriously considering purchasing the property and indicate the kind of mortgage you can afford.
This does not however mean that the agent will not look further into your finances to confirm you have the necessary legal funds to purchase the property, nor will your final mortgage payment necessarily match the “in principle” certificate you receive. They will also ask if you need to sell a property to buy and for proof of your deposit amount.
When do I need to provide proof of funds?
Generally, buyers provide a MIP certificate before the first viewing to show the agent they are serious buyers. Advice from the Property Ombudsman however is that financial evaluations should take place at the time an offer has been made and is being considered by the seller. Agents aren’t the only ones who need to see proof of funds; you could need to show the relevant documents to several parties throughout the transaction.
The estate agent, mortgage provider, solicitor and seller’s solicitor all have the legal right to check if you have the correct funds needed to buy the property. You won’t need to show proof of funds for a deposit or the entire amount if you’re a cash buyer until you make an offer on the property.
Why does an estate agent need proof of deposit?
Estate agents must see your proof of deposit to ensure you’re a serious and proceedable buyer. If you can’t prove that you have the means to buy a house, then the estate agent may question your intentions. Showing proof of funds helps protect the agent and seller, as it shows evidence that you can pay for the home you’d like to buy and are not simply wanting to snoop around someone’s home.
Agents should only ever ask to see bank statements regarding your proof of deposit (or the entire house amount if you’re a cash buyer). There are no other times they should ask to see your bank statements.
Who asks for proof of funds?
When buying a property, an estate agent will ask you to confirm you have the money to buy a house. Other service providers will also need to check that you can afford the property before continuing the process. These include the solicitor working on your behalf, the vendor’s solicitor and of course your mortgage provider will want proof of deposit and income.
When does a solicitor ask for proof of funds?
A solicitor will likely ask to see proof of funds shortly after being instructed to perform necessary money laundering checks in advance of starting the conveyancing on your behalf.
What documents do estate agents need?
What proof of funds do estate agents need? To prove your source of funds an agent will need to see proof of how you obtained money to buy a property. For instance, your source of funds might come from savings. In this case, the agent will need to see that the money comes from a savings account.
This is all compliant to anti-money laundering legislation. Therefore, it’s up to you to prove that money is legitimate and hasn’t come from criminal activity. As well as savings, other sources of income may come from:
- Sale of property
- Gambling win
- Regular income (such as a salary)
In addition to the source of income, agents will need to see proof of ID and other documents. Again, this is so they can prove you are who you say you are and that everything is legal and in accordance with the law. Valid proof of ID includes a passport, driving licence and identity card if you’re from outside of the UK.
Do I need proof of funds for stamp duty?
Stamp duty land tax (SDLT) is the tax due on property transactions and is paid to HM Revenue & Customs. Your solicitor will normally make the payment on your behalf when you exchange contracts. Currently, SDLT is only due on properties costing more than £450,000 (Dec 2022) if you’re a first-time buyer.
Unlike a deposit, proof of funds isn’t required for stamp duty. However, your solicitor will ask that you have the required funds for the stamp duty and the property purchase before they exchange contracts to ensure you have budgeted correctly and can afford the property.
The importance of proof of funds
Providing proof of funds to estate agents is a mandatory requirement and helps everyone involved know you’re a serious, non-fraudulent, buyer. Of course, agents should answer any queries you have about showing funds, and they should only request proof if it’s to check your affordability.
If you’re selling and buying a property, engage with a high-quality agent that belongs to an official membership like Propertymark. This increases the chances of you having a positive experience and receiving a high level of service.
Last Updated: November 22nd, 2023