A property purchase involves the exchange of large sums of money so this makes the transaction susceptible to acts of fraud.

If you are buying a property, at some point in the process your solicitor will need to see proof of how you have obtained the funds to make this purchase - these funds are typically the amount you are paying as a deposit to secure a mortgage on the property, or if you are buying the property outright, it would be the total sum you are paying to make the purchase.

When the process reaches the point at which your solicitor needs to see proof, they may say that they need to see the “source of funds”.

This often causes confusion for clients, especially those who are buying a property for the first time, because they don’t exactly know what it means or what it is that they need to do to satisfy this requirement.

Conveyancers legal requirement to obtain source of funds

Solicitors can’t just briefly scan over statements to see if the numbers all add up. Instead, conveyancers are legally required to both obtain and thoroughly check where the money has come from and how it was obtained by the buyer - rest assured, it’s not a case of your solicitors being concerned or accusing you of any wrongdoing. They are just carrying out their legal requirement to ensure that anyone who did plan to use the transaction to commit fraud can be stopped in their tracks.

The statement that proves that the funds are in a bank account is known as the “proof” of funds, but this doesn’t show the “source” of the funds. Your solicitor will need to see the source of the funds that will be used in the transaction so that they can verify that it has been legitimately earned or obtained.

The source of funds will essentially be a paper trail that shows how the funds originated, how you came to hold the funds and whether or not you have the right to use them to fund the purchase of the property.

A typical example of this paper trail could start with payslips from your employer showing that you have earned a salary, and bank statements proving that the salary was paid into your bank account and from this the funds were saved up over a period of time. The bank statements will show and prove a pattern of earning and saving.

Read: Issues you may encounter when purchasing a property

Many different ways to obtain source of funds

Sources of funds can be very different from one another with some being far more difficult to obtain than others. Your solicitor will understand that information isn’t always readily available, especially detailed financial information, and can sometimes take a while to filter through to them. With that said, the longer it takes to prove the source of funds, the longer the property purchase transaction will be delayed, so that’s just something you should be aware of.

In many cases, some or all of the funds is obtained as a “gift”. This would be when someone who isn’t the named property buyer contributes money towards the purchase. This monetary gift doesn’t provide the giftor with with any rights to live in the property and doesn’t amount to any form of ownership. The giftor will have to confirm this on relevant forms throughout the transaction.

Should the giftor want security over the monetary gift by way of placing some form of restriction on the title then this can be arranged in as a separate transaction. Your solicitor would also want to ensure that your mortgage lender consents to the monies being protected.

If you’re getting a mortgage, it’s important that your broker and lender are fully aware of the monetary gift that you’ll be using to help towards the purchase so that then can confirm that it is acceptable to them. Some lenders only allow gifted contributions from certain people, such as family members.

If you’re confused or unsure of exactly what documents you need due to your source of funds being uncommon, don’t hesitate to ask your solicitors as they should be more than happy to tell you. Whether it’s funds from an inheritance, a gift, dividend pay-outs, divorce settlements, or just standard savings, your conveyancing team will be able to tell you exactly what they need to make the whole process as simple as possible for you.

Read: Buying a home? Make sure you’re protected

Here at Fonseca Law in Ebbw Vale, we offer expert conveyancing as well as a wide range of other legal services. To learn more about how we can help with the legal side of your property purchase, don’t hesitate to get in touch with our team of solicitors by calling 01495 303124, e-mailing enquiries@fonsecalaw.co.uk or by completing our simple online contact form.