Key Takeaways regarding Source of Funds:

1. A Bank Balance isn’t Proof: Simply showing that the money is currently in your account is not enough. You must demonstrate the origin of that specific money and provide an audit trail showing how it arrived there.
2. Expect Repetition: Estate agents, lenders, and solicitors are separate regulated entities. By law, they cannot rely on each other’s checks, so you must provide the same evidence to each party independently.
3. Gifters get Checked too: If you are using a gifted deposit from family, the person giving the gift must also provide a letter of confirmation and will likely need to submit their own bank statements and ID.
4. Avoid Cash and Transfers: Do not deposit large amounts of physical cash into your account, and avoid moving the deposit money between different accounts unnecessarily, as this breaks the audit trail and causes delays.

When you’re buying a property in the UK, you’ll likely come across the term Source of Funds or SOF during your mortgage application. Many first time buyers are not aware of this process and this sometimes creates problems during the property purchase journey. This blog will provide everything you need to know about Source of Funds, helping you prepare the right documentation and avoid stress.

What Exactly is the Source of Funds?

Source of Funds refers to the documented evidence that proves where your deposit and mortgage funds are coming from. It’s not just about showing you have the money, it’s about demonstrating that these funds have been obtained through legitimate, legal means.

This requirement exists to comply with UK anti-money laundering (AML) regulations. Lenders, solicitors, and estate agents all have a legal duty to verify that the money being used to purchase property hasn’t come from criminal activity, tax evasion, or other illicit sources.

Think of it as your money’s CV, it needs to show a clear financial trail of your deposit. If it is coming from years of saving, a gift from family, the sale of another property, or an inheritance, you’ll need to provide evidence and clarification to the SOF analyst to ensure compliance.

Why does the Source of Funds matter during the property purchasing process?

You might wonder why we need to know so much about your personal finances. The primary reason is the law. The UK property market is a high-value sector, which unfortunately makes it a target for criminals looking to launder illegal money.

Under strict Anti-Money Laundering (AML) regulations, professionals involved in your transaction, including mortgage brokers, lenders, estate agents, and solicitors have a legal duty to verify that the money used to buy a home comes from a legitimate source.

If these checks are not carried out, professionals can face severe fines or even imprisonment. More importantly, these checks protect you. They ensure that you are not unwittingly involved in a chain that includes fraudulent funds, and they stop the transaction from collapsing later down the line. If a solicitor cannot verify your funds, they are legally required to stop acting for you, which would halt your purchase entirely.

• What Checks Are Carried Out on My Source of Funds?
• The checks performed will vary depending on where your money is coming from, but here are the most common scenarios:
• Savings from employment: You’ll need to provide recent payslips (usually 3-6 months), bank statements showing regular deposits that match your salary, and possibly your employment contract. Lenders want to see a consistent savings pattern over time.
• Gift from family: This requires a gifted deposit letter signed by the person giving you the money, proof of their identity, evidence that they have the funds to give (their bank statements), and confirmation that it’s a genuine gift with no expectation of repayment.
• Sale of previous property: You’ll need the completion statement from your solicitor, bank statements showing the proceeds being deposited into your account, and the original purchase documents of that property.
• Inheritance: Documentation required includes a copy of the will or probate documents, a letter from the estate executor or solicitor, and bank statements showing when the funds entered your account.
• Business profits or sale: Self-employed individuals or business owners will need to provide tax returns, business accounts, proof of business ownership, and bank statements showing the transfer of funds.
• Investment or pension withdrawal: Provide investment statements, proof of sale or withdrawal, and bank statements showing the funds being received.

The key is the Audit trail. If you transferred money from Account A to Account B, you need statements for both accounts to show the movement. Any gaps or unexplained deposits will raise red flags and require further investigation.

What are the major Dos and Don’ts?

Getting your Source of Funds documentation right can make the difference between a smooth purchase and a stressful one. Here’s what you should and shouldn’t do:

Do:

• Do keep a paper trail: If you move money between accounts, keep a copy of the bank statement showing the transfer.
• Do prepare early: Gather your documents as soon as you start looking for a house. Scrambling for a bank statement from three years ago can cause stressful delays.
• Do be transparent: If your funds are complex (e.g., from overseas or crypto assets), tell us and your solicitor immediately. It allows us to check if the lender will accept them.
• Do warn your gift donors: If your parents are gifting you money, warn them early that they will also need to provide ID and bank statements.

Don’t:

• Don’t deposit cash: Avoid depositing large amounts of physical cash into your bank account. It is almost impossible to prove where physical cash came from (unlike an electronic transfer), and many solicitors will refuse to handle it.
• Don’t move money unnecessarily: Try to keep your deposit funds in one place. Moving them through multiple accounts makes the “audit trail” harder to follow and raises questions.
• Don’t take it personally: Remember, these checks are mandatory for everyone, regardless of how wealthy or well-known they are.

Our advice to the Clients?

At Kingsgate Finance, our advice is to view Source of Funds checks as a standard part of the modern buying process, much like a credit check.

Be organised and be patient. Download your bank statements. If you bank online, you can usually access statements going back several years. If you receive paper statements, file them carefully. If there is a large transaction on your statement (perhaps you sold a car or received a tax rebate), find the paperwork that proves it.

Consistency is key. Ensure the information you give to your estate agent, your mortgage broker (us), and your solicitor matches. If you tell the estate agent the money is from savings, but tell the solicitor it is a gift, it raises a red flag that will pause your application.

By having your evidence ready and understanding why we ask these questions, you will save yourself time and stress, allowing you to focus on the exciting part of moving into your new home.

If you have any further questions about the process or need advice tailored to your specific situation, please do not hesitate to get in touch or book a free initial consultation with our team at Kingsgate Finance.

Frequently Asked Questions (FAQs)

1. Why do I have to provide proof to you, my solicitor, and the estate agent separately?

It can be frustrating to provide the same documents three times, but under UK law, the estate agent, the mortgage lender, and the solicitor are all separate regulated entities.They each have their own independent legal duty to verify your identity and funds. They cannot just rely on each other’s checks; they must see the evidence themselves to avoid fines or prosecution.

2. Can I use money given to me by friends or family? 

Yes, usually, but this is classed as a Gifted Deposit. You will need a Gifted Deposit Letter signed by the donor confirming the money is a gift and they have no claim on the property. Furthermore, the person giving you the money will often have to undergo the same ID and Source of Funds checks as you. If the money is a loan from a friend, many mortgage lenders may not accept it or you may need some form of loan agreement so please check with us first.

3. I am a cash buyer. Do I still need to show where the money came from? 

Absolutely. In fact, cash buyers often face more scrutiny because there is no mortgage lender conducting their own checks. Whether you are buying with a mortgage or with cash, the solicitor must verify that the funds are legitimate before the transaction can proceed.

4. What if my money is coming from overseas?

This is allowed, but it can be more complex. Some countries are classified as high risk, and some lenders or solicitors may have policies against accepting funds from certain jurisdictions. If your funds are abroad, let us know immediately so we can match you with a lender who is comfortable with international transfers. You will still need to provide translated bank statements and proof of the origin of that money.

5. Why do you need to see my bank statements for the last 6 months? 

We need to see the accumulation of funds. Seeing a balance of £20,000 on one day doesn’t tell us where it came from. Seeing a salary go in every month and £500 being saved monthly for three years tells a clear story of legitimate savings. We are looking for a consistent financial history that matches your income and lifestyle.

This blog is for informational purposes only and does not constitute financial advice. Mortgage products and regulatory requirements may change. Always consult with a qualified mortgage adviser for advice tailored to your individual circumstances.