Buying a home is a big financial commitment and understandably, it involves a fair amount of paperwork and checks along the way. One of the first things your solicitor will ask for is proof of funds. What exactly does it mean, and why is it so important?
What is Proof of Funds?
Proof of funds (POF) is documentation that shows you have the money available to purchase a property. It demonstrates that you can cover the deposit, associated fees (like stamp duty or solicitor costs), and in some cases, the full purchase price; especially if you're a cash buyer.
Typical examples of proof of funds include:
- Bank or savings account statements
- Bank statements showing your deposit amount for a mortgage
- A mortgage agreement in principle (also known as a decision in principle)
- A letter from your bank or financial adviser
- Evidence of a financial gift (e.g. a letter from the person who gave it to you)
- Confirmation of funds received through inheritance (e.g. a will or probate letter)
- Receipts or records showing shares have been sold
- Evidence of a recent property sale (if you’re using those proceeds for your next purchase)
- For cash buyers – bank statements showing available cash
The documents need to be recent, usually within the last 1 to 3 months, and should clearly show your name and the available balance.
Why do solicitors need Proof of Funds?
Solicitors aren’t just being nosy, they have very good (and legal) reasons for asking. Don’t be put off if you get asked for proof more than once; it is a legal requirement for everyone to check where your money has come from so you may get asked for proof of funds several times throughout the home buying process.
1. To comply with Anti-Money Laundering (AML) regulations
Solicitors are legally required to carry out due diligence under anti-money laundering laws. These rules are in place to prevent criminal activity, like using illegal funds to buy property. Verifying your funds helps ensure that your money comes from a legitimate source.
Purchasing property in the UK is a well-known method used by organised criminals to launder money. Because of the high value of property and the size of the UK market, large sums of illicit funds can be 'cleaned' through a single transaction, making them appear legitimate. So, when solicitors ask for proof of funds, it’s not personal—it’s a vital step in preventing financial crime and protecting everyone involved.
2. To ensure the sale can proceed smoothly
When you're buying a house, the solicitor needs to be confident that you can actually afford the purchase. If you're relying on a mortgage, they’ll want to see a formal offer. If you're buying in cash, they need to confirm you have those funds readily available. This helps avoid unnecessary delays later on.
3. To identify the source of funds
In addition to checking that you have the money, solicitors need to understand where it’s come from. Was it savings? An inheritance? A gift from a relative? You may be asked to provide supporting documents, such as a will, a gift letter, or payslips, to show the trail of funds.
4. To protect everyone involved
By confirming that your funds are in place early in the process, your solicitor is also protecting the seller, the estate agent, and even you. It prevents a situation where the sale falls through at the last minute due to missing finances.
What else will you need?
Proof of ID
Estate agents are legally required to confirm your identity and address as part of anti-money laundering regulations. This is known as due diligence and is a standard part of the property process. To complete these checks, you’ll be asked to provide valid proof of both your name and current address from the lists below.
Accepted Proof of Name (one of the following):
- Current passport
- Residence permit
- Current UK or EU photo driving licence
- HMRC tax notification
- State pension or benefits book/notification letter
Accepted Proof of Address (one of the following):
- Current council tax bill Local authority rent card or tenancy agreement
- Recent mortgage statement
- Recent bank statement
- Recent utility bill (excluding mobile phone bills)
What happens if you can’t show Proof of Funds?
If you can't provide proof of funds when asked, it could delay your purchase or even stop it altogether. Your solicitor is unlikely to proceed with certain steps (like exchanging contracts) until everything checks out. It could also make the seller nervous, especially in a competitive market. Having your documents prepared and ready to go helps the process go ahead smoothly.
Final thoughts
Proof of funds might seem like just another hoop to jump through when buying a home, but it plays a crucial role in making the process safe and legitimate for everyone involved. The key is to get your documents in order early, so when your solicitor asks, you’re ready to go. If you’re unsure what’s needed, don’t worry—your solicitor or estate agent can guide you through what to provide. With your finances confirmed, you'll be one big step closer to picking up the keys to your new home.
