At some point during the process of buying your first home, an estate agent will ask you for Proof of Funds or Proof of Deposit, as part of their buyer checks. What information should you provide?
There is a good reason why estate agents ask for proof of funds; they are not being nosy or wanting to see how much more you can pay for the property. However, it is very private and personal information; most people do not even share their financial information with their parents or close friends, let alone a stranger like an estate agent!
If you do decide to provide the information, there are some watch-outs during this process, as some dodgy estate agents exploit this simple proof of funds ask for more nefarious reasons. In this comprehensive guide, we explore what information to share, how much to share, what to watch out for, and what information to ask the estate agent to provide in return.
Estate Agent Checks on Buyers – Sections to our Guide:
- Why do estate agents ask for proof of deposit?
- Estate Agent checks on buyers
- Why Estate Agents ask for proof of funds
- Red Flag: Estate Agent pressuring to use mortgage broker
- Anti Money Laundering (AML) checks when buying a house
- How to show proof of funds
- Why do estate agents need bank statements?
- What you should ask: estate agent checks on seller
Why do estate agents ask for proof of deposit?
The intention is good – they want to ensure that the buyer is serious, so as to not waste their time and the house seller’s time. Believe it or not, many prospective First Time Buyers try to book in house viewings and even make offers, without even knowing if they have the money available! As a result, estate agent checks on buyers are now a normal part of the process. Therefore, most estate agents will ask for proof of deposit or proof of funds sometime during the house buying process.
In addition, estate agents now have to abide by Estate Agent Anti-Money Laundering (AML) Guidelines, which state that they must do checks on buyers for whether their money has been obtained legitimately. Asking for details around your deposit, in the form of proof of deposit, helps to satisfy that requirement. See our section below on why estate agents do Anti-Money Laundering checks.
Estate Agent checks on buyers
Proof of funds is just one of the asks that estate agents will ask you to provide, as part of the house buying process. There are a few things they want to know, to establish whether you are a credible buyer, ready to proceed on the Road to Exchange if the house seller accepts your offer:
- Proof of funds / Proof of deposit. They will want to see you have the money available, in cash, in an easy access savings account or current account. You might also be asked to provide evidence of the source of funding, to ensure it is legitimate and does not break Anti Money Laundering regulations. For example, if you have been gifted the house deposit from your parents, you might need a letter from your parents stating that. Or if you had won the money in a lottery, you will need to provide the winnings letter, to ensure the money came from a legitimate source.
- Proof of mortgage eligibility. They will want to see that you have an Agreement in Principle (AIP), sometimes called a Decision in Principle. This shows that a bank has indicated they could be willing to lend to you, based on your situation.
- Proof of ID. Due to Anti-Money Laundering regulation, estate agents now need to see identification details, usually just before or right after an offer is accepted.
- Chain situation. This does not apply to First Time Buyers, as you do not have a property to sell. But they will want confirmation that you have no chain, as part of estate agent checks on buyers.
- Proof of employment. As most mortgages will require you to be in full time employment to be eligible, an estate agent might ask for a letter from your company confirming your employment status, and how long you have been with the company.
Note, however, that apart from the items required for Anti-Money Laundering purposes, all the other information listed above is optional and not required by law. For example, Proof of Employment is not required, so if you declined to provide it, the estate agent is still legally obligated to pass on your offer to the house seller.
If you are being asked to provide something more than the above list, alarm bells should ring in your head and you should question the estate agent why they need that information.
Also, be wary if the estate agent tries to pass you to a “partner” or “another company” such as a mortgage broker to perform the checks, especially Proof of Funds or Proof of Deposit checks. This is often them trying to earn a commission by pressuring you to use their mortgage broker.
Why Estate Agents ask for proof of funds
Estate agents are incentivised to get a house transaction done – which requires both a credible seller and a credible buyer. Therefore, their interest is not only to find the right buyer for the property, but also to make sure the buyer has the means and motivation to get to the point of Exchanging Contracts.
While estate agent checks on buyers might seem like an intrusion of privacy into this most intimate of matters (your financial situation and your bank account), this is normal practice. It will also help strengthen your offer, when the estate agent passes it on to the seller, if they can confirm that they have checked your proof of funds.
Note that estate agents should not be passing on your personal financial documents and any other proof of funding evidence to the house seller, as that would be a breach of GDPR. All they should do is confirm to the seller that they have seen your evidence and believe you have the funds available. In the how to show proof of funds section below, we outline what you should explicitly ask your estate agent to do or not do with the information you provide for proof of funds.
Red Flag: Estate Agent pressuring to use mortgage broker
One of the annoying things about house buying these days is that almost every estate agent will try to refer you to their “in-house” or “partner” mortgage broker. This is because, if a buyer does end using their referred broker, they could make hundreds of pounds of commission just from the referral.
You should never feel pressured to use their referred broker, for any of the proof of funds, proof of mortgage, or any other checks. The law, Estate Agency Act, section 7C, is very clear on this:
“By law you must not discriminate, or threaten to discriminate, against a prospective buyer of the seller’s property because that person declines to accept that you will (directly or indirectly) provide related services to them.”Estate Agency Act, section 7C
If you ever get pressured to use a referred service, in exchange for your offer being put forward to the house seller, that is in breach of the law. If you need to make a complaint, Which.co.uk has a good complaints guide.
The best practice is to find your own mortgage broker, whether through word of mouth referral or from doing your own research. Often the estate agent’s partner mortgage broker has a very close relationship with the estate agent, and whilst professionally they should not share any information, in reality it is sometimes hard to enforce given the chummy financial and professional relationship between the two. Therefore, you might find very personal financial information, that you divulge to the mortgage broker, finding its way to the estate agent, and could be used against you by the seller to get you to pay more for the property. Why take the risk?
Anti Money Laundering (AML) checks when buying a house
As of 2017/2018, estate agents have had to adhere to Anti Money Laundering regulations, and perform checks on house buyers and sellers to ensure that they are not facilitating money laundering.
As a first time buyer, all the information requested might seem very intrusive and bizarre, given that your funds are all legitimate – hard earned savings from work and investments, and also hard earned money that has been gifted to you by family or friends. Unfortunately, money laundering is very real and prevalent in housing transactions, hence the tightening of regulations in recent years.
However, many estate agents are being opportunistic and asking for all sorts of information about your financial situation, under the guise of doing it for Anti Money Laundering checks.
If you are asked for a lot of information, especially detailed proof of funds, ask the estate agent to clarify in writing which asks are specifically for anti-money laundering purposes, and which ones are just their estate agent checks on buyers, which are optional.
How to show proof of funds
There are two main ways to show proof of funds, or proof of deposit. The intention is to show that you have an adequate amount of money in your bank account to cover the mortgage deposit for your first home, as well as enough money for all the associated costs for transacting (stamp duty, conveyancing, mortgage fees, survey, searches, moving costs, etc).
The easiest way is to show a copy of your latest bank statement, showing a balance that covers the above amount. However, bank statements are deeply personal. In addition, if you have much more money in your account, you might feel uncomfortable revealing this to the estate agent. It has been known in the past for unethical estate agents to then use that information back against you by pressuring you to up your offer, knowing you can afford to put down a larger deposit.
We therefore recommend planning ahead in advance; open up a separate easy access savings account, or current account, and putting the money you set aside for your house purchase there. That way, the proof of funds statement does not reveal your day-to-day transactions, nor your wider financial situation.
If you do decide to submit bank statements for proof of funds, you could further reduce leakage of your personal information, by blacking out information not required – such as your bank account number and sort code, your itemised transactions, and anything else personal. The statement does have to show the date, your name, address, and opening and closing balances though, for it to be trusted.
The best way to show proof of funds, without using a bank statement, is to ask your bank to write you a proof of funds letter. You can instruct the bank to only mention the specific amount you want mentioned (i.e. John Smith has a bank account with us and it has a balance in excess of £30,000 on the 5th February 2021).
Before or when you send over your proof of funds evidence, as well as any other personal documents, you should ask for four things for the estate agent to do:
- Provide you with their guidelines on how long they will keep this information on file before deleting
- Provide confirmation that these documents will not be shared with the house seller or any other third parties. Explicitly mention you are not happy for the documents, or email, to be shared with anyone outside of the estate agency office
- Instruct that they delete any documents provided, within 14 days, that they do not need to retain for anti-money laundering purposes, under your GDPR rights
Why do estate agents need bank statements?
Estate agents ask for bank statements for proof of funds, because this is usually easiest for buyers to find and send over. However, they will equally accept a proof of funds letter from your bank. But this will take you time to procure.
What they are looking to see from the bank statement is that you have sufficient funds in your account to cover the mortgage deposit, along with all the fees and costs associated with purchasing a property. Estate agent checks on buyers are there to establish that you are a credible buyer, able to get to Exchange of Contracts and Complete on the property successfully.
Once they have validated your proof of funds, they can then confirm to the house seller that they have seen evidence of your financial credibility, which adds weight to your offer.
Sellers want to find buyers that are genuine, and are likely to want to get some assurance that the offer is genuine and will be able to get all their finances in place for Completion. By giving assurance to the seller that you are a credible buyer, you could potentially get the seller to accept a lower price, in exchange for more certainty of a transaction!
What you should ask: estate agent checks on seller
Two can play this game! The whole purpose of estate agents asking for proof of funds is to give the seller comfort that you are a serious buyer.
Similar to how estate agents do checks on buyers, they also do checks on sellers too.
Before or when you submit your offer, you should also ask for confirmation that the property is being sold by a serious seller. This is a topic for another article (coming soon!) but here is a quick list of things you could ask for:
- Confirmation from the estate agent that the seller(s) own(s) the property solely/jointly in their name(s), has the full authority to sell the property, with no other economic interest from any other party.
- If the seller has a mortgage, confirmation that the seller is up to date with their mortgage and not in arrears
- If the property is leasehold, confirmation that the seller is not in arrears to the freeholder (i.e. for major works, ground rent, etc)
- Confirmation of the seller’s chain status. If they are in a chain, proof from the seller that they have had an offer accepted for their next house move.
- Confirmation of the seller’s employment status, if they are in a chain and looking to buy with a mortgage. If they are looking to buy all cash, ask for proof that they can afford their next property.
- If the seller is in a chain, confirmation of how long the chain is and details of each link in the chain, and their progress to Exchange, so you know how much chain risk you are taking on. Chain collapse is a common issue – read our article on how deal with the top of the chain pulling out.
- If the property is tenanted, proof that the tenants are on a legitimate assured shorthold tenancy contract, that the fixed period has passed, and/or the seller has already serviced notice, and when the tenants are moving out.
Remember, on the Road to Exchange after your offer is accepted, as a buyer you take on more risk than the seller because of all the fees you have to pay for surveys, searches, conveyancing, and mortgage. Therefore it is in your interest to ensure you are transacting with a credible and motivated seller, who is not going to pull out of the transaction halfway.