Anti-Money Laundering Checks When Buying a House: Your Guide

Before you can buy a house or flat in the UK, you’ll be asked to comply with anti-money laundering (AML) rules and regulations. To do this, you’ll need to verify your identity, provide proof of address, and show that the funds you’re using to buy the property have been earned or gifted legally.

In this guide, we’ll explain the importance of these checks, how they work, who carries them out, what you need to provide, and whether they can affect your credit score (spoiler alert: they don’t.)

Why are AML checks important when buying a house?

The UK’s property market is large, active, and involves vast amounts of cash being transferred daily, making it a prime target for criminals looking to launder stolen money.

According to Transparency International, the UK’s leading independent anti-corruption organisation, £6.7 billion of questionable funds from around the world have been invested in UK property since 2016.

Anti-money laundering checks help detect and fight fraud and corruption in the property industry by ensuring that buyers are who they say they are and that they’re investing or spending their own legally acquired money.

What is money laundering?

As the name suggests, money laundering is the act of taking ‘dirty’ money and ‘cleaning’ it. 

In other words, criminals try to make their illegally obtained funds appear legitimate by merging them into the legal economy.

For instance, they might purchase a property using stolen cash, which allows them to own an asset and earn ‘clean’ money via rental payments or a subsequent sale. Ultimately, this makes it more difficult for law enforcement agencies to trace the funds back to illegal activities.

How do anti-money laundering checks work when buying a house?

Anti-money laundering checks are carried out at various stages of the home buying process – and by several different people.

Don’t worry if you’re asked to do an anti-money laundering check more than once. You’re not suspected of doing anything wrong; it’s just that your mortgage lender, estate agent, and solicitor are all legally obliged to run AML checks on property purchases.

• Mortgage lenders need to verify your identity and see where your funds have come from early on in the process before agreeing to lend to you.

• Estate agents may want proof of funds before you make an offer (to show you can afford the purchase). You don’t need to share this information at this early stage. However, when an offer is accepted, you must provide proof of funds to satisfy anti-money laundering checks for estate agents.

• Solicitors or conveyancers will also need to run an AML check once you’ve had an offer accepted, after which they’ll remain vigilant for suspicious activity throughout the transaction. Finally, once the sale has gone through, your solicitor must verify your identity with the Land Registry before your new property can be registered in your name.

What do you need to provide for anti-money laundering checks?

The good news is that AML checks are relatively straightforward and won’t take long. It’s usually done and dusted within a week, assuming there are no hiccups.

Most organisations start by verifying your identity on the Electoral Register, although you may also be asked to provide further documentation to confirm your name and address.

You’ll also need to show that you have the money required to fund your property purchase and prove that it’s come from a legal source.

Here’s what you need to satisfy anti-money laundering checks when buying a property (you won’t need them all – one or two from each category should help you prove your name and address):

1. Documents to verify your identity

• Up-to-date and valid passport.

• Valid UK driving licence.

• Birth certificate.

2. Documents to verify your current address

• Full driving licence (if not used to prove your identity).

• Utility bill (such as a gas, electric, water, or broadband bill) issued within the last 3–6 months.

• Council tax bill for the current tax year.

• Recent bank or mortgage statement.

3. Proof of funds

Lenders, estate agents, and conveyancers need to see proof of funds to know you have the money required to make the purchase and that those funds haven’t been obtained illegally.

You can do this by sharing the following:

• A mortgage in principle.

• Bank statements of the deposit amount (for mortgage buyers).

• Bank statements of the total cash amount (for cash buyers).

• Evidence of a property sale (if you’re using the funds to buy the new property).

• Proof of a gifted deposit (if the money has been given to you by a parent or loved one).

4. Source of funds

In addition to proving that you have the money required to buy the property, you also have to show how you acquired it.

Many property buyers put down a deposit and use a mortgage to fund the rest of the purchase. As a result, you’ll need to show where the deposit came from.

Likewise, if you’re able to buy the property outright in cash, you’ll need evidence of how you came into possession of the full amount.

To do this, you’ll have to share one or more of the following:

• Bank statements showing how your money has built up over time.

• Evidence of a property sale (if you’re using the funds to buy the new property).

• If you’ve been gifted the cash, you’ll need a confirmation letter from the person you’ve received it from.

• Evidence of money being left to you in an inheritance.

• Proof that you’ve sold shares.

• Evidence that you’ve won money (gambling, lottery, etc.)

What can’t be used for anti-money laundering checks?

Some documents, such as provisional driving licences, mobile phone bills, and credit card statements, may not be accepted as proof of identity or proof of address.

Every organisation has its own criteria, and some may feel these documents don’t provide enough information about your identity or address.

Money laundering red flags when buying a house

Once you’ve supplied the requested information, you may find that something about your situation or documentation has raised a red flag. This isn’t uncommon, and if you have nothing to hide, it’s nothing to worry about.

The following situations will usually trigger a deeper dive into your background before you can proceed with your property purchase:

• Errors in your documents: You may be asked for further explanation if your name or address is misspelt or inconsistent. This could be a simple mistake, like forgetting to update your details after moving or getting married. 

• You were slow or late in supplying documents: It could cause concern if the agency has to chase you for documentation. It’s best to respond as soon as possible to avoid any unnecessary delays. 

• You’re buying in cash: Although cash buyers are on the rise in the UK, it’s not the most common way to fund a property purchase. If you’re fortunate enough to have the full amount needed to buy a house outright, you may find yourself under extra scrutiny to prove where it came from. Make sure you have your evidence organised from the outset, whether it’s a savings account, proof of a property sale, or lottery winnings.

• You’re buying from overseas: Much of the threat of money laundering in the UK property market comes from abroad, as criminals try to distance themselves from their shady gains. This means if you’re an overseas buyer (or your money has been sourced from outside the UK), you’ll probably face additional checks before you can buy a property.

What happens if you fail anti-money laundering checks?

If your situation triggers one of these red flags, don’t panic. You’ll simply be asked to provide further evidence or information. Depending on who conducted the check, your lender, estate agent, or solicitor will inform you of the next steps.

Can anti-money laundering checks affect your credit score?

No, the anti-money laundering checks carried out by your estate agent, conveyancer, or mortgage lender won’t affect your credit score.

AML checks are typically recorded as soft searches on your credit report, used to verify your identity.

Soft searches don’t impact your credit score or your ability to get credit, unless they’re made for debt collection purposes.

How can I see the anti-money laundering checks made by my solicitor and estate agent?

If you want to track the anti-money laundering checks carried out on you during the house-buying process, you can see it all at Checkmyfile.

We give you access to the most detailed credit report you can get. It gathers your complete credit history from Experian, Equifax, and TransUnion, so you can see everything the credit reference agencies hold for you in one place.

Get your 30-day free trial now, then it’s just £14.99 a month. You can cancel online anytime.

To recap

Anti-money laundering checks help fight fraud and corruption in the property market by making sure you are who you say you are and that you’re spending your own hard-earned (and legally acquired) money.

Multiple AML checks are a standard part of the property buying process – and as long as you have nothing to hide, they’re nothing to worry about.