Buying a new home is a very exciting time but can also be quite daunting as there is a lot of legal paperwork to sort out and understand.

When you instruct a solicitor to act on your behalf, one of their first jobs, which is required by law, is to verify your identity, and in the case of a purchase, details of your source of funds. This is required by all solicitors as they must comply with the law about money laundering and proceeds of crime, in particular The Proceeds of Crime Act 2002.

The rules are not prescriptive, but all solicitors are required to take reasonable steps to verify where the money you are purchasing your property with is from.  Therefore, you will be asked whether money you are contributing is from your savings, being gifted to you or loaned to you from a third party (separate from your main mortgage lender), and whether any of the monies are from overseas. If so, you will also be asked to supply supporting documentation to prove the source of the money, such as:

1. Money being provided by you from savings

Solicitors will need to see copies of bank statements showing the monies being used for your house deposit.  They will also need to know how this was accrued, for example regular savings, inheritance, property sale, divorce settlement, etc, and will request evidence to support this.

2. Gifts from Third Parties

Solicitors will need to see the original of a letter, addressed to your mortgage lender, which has been signed and dated by the person making the gift confirming information such as the property address the gift is for, the amount of money being gifted, the relationship of the people to you, that the money does not have to be repaid, plus other questions. Evidence of how this gift money was accrued will also be requested, plus copies of bank statements showing the money.

3. Monies being loaned to you

If you are borrowing any monies towards the purchase, in addition to any mortgage, then your solicitor is required to report this to your mortgage lender. It is worth noting that this may affect their decision to lend.

If you do not have a mortgage but are borrowing monies privately, then you will need to provide details of any arrangements that you have agreed with any private lender.

4. Monies coming from abroad

You will need to provide details of any money that is coming from abroad, whether this be your own savings or monies that are being gifted to you, and confirmation of which country it is coming from.  Depending on which country the money is coming from there may be some additional requirements and be prepared to provide translations of bank statements and other documents.

It is possible that your deposit may come from more than one of the above categories, in which case, it is important to provide everything that is relevant for each part.

With regards to proving your personal identity, your solicitor will provide you with a list of documentary evidence that they require, which includes a passport, photocard driving licence, National ID card with photograph or residence permit issued by the Home Office, plus others. You will also be asked to prove your current address with evidence such as recent utility bills, council tax bill for the current year, or a recent mortgage statement.

As well as it being a legal requirement, it is important to remember to satisfy your ID, proof of address and source of funds with your solicitor as soon as possible, as they will be unable to proceed to exchange without them.

Arash Remasi, Partner and Head of New Build Outright

The positive impact over the years on the lives of many homeowners that Homes England has achieved though their equity loan assistance scheme is undeniable. It has helped so many people get onto, and indeed even move up, the property ladder earlier than they may have otherwise been able to, in the main due to the larger deposits required by lenders that has, sadly, become the norm in today’s lending market.

The current incarnation of this, the Help to Buy Equity Loan: 2021-2023 scheme, will certainly be no different.  The scheme however does undoubtedly have certain strict requirements and complexities that need to be fully understood and embraced in order for a matter to reach a successful exchange and completion.  That said, these should be for a buyer’s professional advisors to undertake diligently behind the scenes (hopefully utilising all their knowledge and experience!) rather than for a buyer to have to think about as, in essence, a legal advisor’s job is to make the transaction as approachable and simple as possible for a buyer.

When we as a firm started out on the equity loan “journey”, the scheme was known as HomeBuy Direct, which I am pleased to (just about!) recall, worked by way of the government and the housebuilder providing two separate equity loans to a buyer of a new home. This then evolved into to the FirstBuy scheme, which gave a single equity loan from the government to a first time buyer of a new home. It then became Help to Buy Equity Loan: 2013-2021, changing the eligibility criteria to allow existing homeowners to also benefit from a single equity loan from the government when buying a new home to live in.

At Direction Law we have acted for thousands of buyers purchasing under the various equity loan products above, and so we share the positive view held, no doubt, by those of you reading this article who intend to benefit, or indeed may already have, from Homes England’s latest equity loan product, the Help to Buy Equity Loan: 2021-2023 scheme.   On this, some key information and considerations for buyers is available online in a really approachable format at https://www.gov.uk/government/publications/help-to-buy-equity-loan-buyers-guide.  To summarise, some key parts of the latest scheme are that it:

• Reintroduces the requirement for the equity loan to only be available to first time buyers.
• As with the previous HTB product, no interest is payable for the first 5 years of the equity loan.
• Allows a buyer to borrow between 5% and 20% (or 40% if in London) of the market value of their new home, subject to new regional maximum price caps.
• Stipulates that a buyer must arrange a mortgage with a bank or building society of at least 25% of the purchase price of their new home.
• Specifies that a buyer must pay off the equity loan when paying off their main mortgage, selling their home or reaching the end of the equity loan term, which is normally 25 years.
• Requires that applications made by a buyer that is married, in a civil partnership, or in a co-habiting relationship, either now or on legal completion of their purchase, will have to be a joint application with any such partner or spouse.

The key message I really want to get across, particularly if you are reading this as a potential buyer, is the importance of instructing professional advisers to act for you who specialise in equity loans, whether that be your legal advisor acting for you on your conveyancing, or your mortgage broker in relation to applying for the loan.  In short, when appointing a professional advisor to act on a Help to Buy equity loan matter it is their experience that counts, now more so than ever before!

For more information about the Help to Buy purchasing process, and general conveyancing process, please take a look at the links below for useful information on timescales, what information you will need to provide, and more:

• Guide for HTB buyers
• Specialist New Build Solicitors
• Conveyancing Process video