Disclosure has long been a part of buying property but it became more of an issue during the Covid-19 lockdowns.
With restrictions easing and the Data Protection Commissioner taking a view on what can be asked as part of the sale process, what exactly do you need to know about showing proof of funds?
The issue
Earlier this year it emerged that potential first-time buyers at the Somerton estate in Lucan were being asked by agent Savills to offer “full proof of funds” to view a property.
The documentation required included showing evidence of approval in the Help to Buy scheme; mortgage approval in principle – with the loan amount approved visible; evidence of savings and gifts from family; or a bank statement, or a letter from solicitor, if purchasing with cash.
While some were aggrieved at being asked to disclose such personal information so early in the transaction, amid fears about what the data could be used for, Savills argued that such screening of potential viewers was warranted due to the level of demand.
The Data Protection Commissioner said there was 'no justification' for agents to collect extensive personal data about prospective buyers who are viewing a property
The agency said it had more than 5,000 expressions of interest linked to the Somerton estate and that it was more akin to a sales launch than a viewing, given the Covid-19 restrictions .
Ultimately, the data request didn’t put potential buyers off – the 44 homes that were available have all since sold – but it was subsequently taken up by the Data Protection Commissioner.
In a statement, the Data Protection Commissioner said there was “no justification” for agents to collect extensive personal data about prospective buyers who are viewing a property.
It said the data required for a viewing should be “significantly less than the personal data which may be necessary where an individual decides to progress to a more advanced stage of purchasing a property” such as placing an offer on a property, going sale agreed, or concluding a purchase.
It said that there is no justification for the collection of information such as financial statements, proof of funds, utility bills or PPS numbers from people viewing homes.
What does this mean for buyers today?
In short, then, following this guidance from the Data Protection Commissioner, buyers will not have to provide any documentation on how much they can afford when seeking to view a new home this autumn.
Indeed a number of estate agents, including Savills, have confirmed that potential buyers won’t need to offer any financial statements when looking to view a property.
However, while buyers won’t need to show it at this stage, where possible they should be aiming to have it in place; that way, if they wish to proceed to the next stage they can do so without delay.
This is because when it comes to reserving a new home and putting down a deposit on it, applicants will likely be required to show their proof of funds.
Putting down a deposit on a property may mean that the property is off the market for a period, during which it could have been acquired by another buyer
Estate agents say that ensuring an applicant has proof of funds is necessary to ensure that whoever is bidding on a property has the means to complete the transaction. Otherwise, should they drop out at some stage, their bids may have served to increase the price – if they hadn’t been allowed to bid, their bids wouldn’t have counted, and thus the eventual price would have been lower.
"Our own anecdotal evidence suggests that at times, as many as one in four bidders do not have the financial wherewithal to see the transaction through, which is unfair to other bidders and the vendor," says Paul Murgatroyd, director of research and business development with DNG.
In a new homes context, putting down a deposit on a property may mean that the property is off the market for a period, during which it could have been acquired by another buyer.
What is proof of funds?
So what exactly do you need to show? If you’re buying with a mortgage, for example, you are likely to have received an approval in principle (AIP) from your lender. This is a letter, addressed to you, that outlines how much the lender is willing to approve you for a mortgage.
This letter needs to be in date (ie written in the previous six months) – but whether you can black out how much you have been approved for may depend on the agent you’re dealing with.
You may also be asked to show proof that you have been approved for the Help to Buy scheme.
If you have to sell your home to go ahead with the transaction, your solicitor may be asked to provide proof that contracts have been signed on the home you’re selling.
If you’re a cash buyer – or a chunk of your purchase funds is coming from cash, whether a gift or otherwise – the estate agent may require you to provide a screenshot of your bank account showing you have the funds. Alternatively, a solicitor’s letter, or a letter from your bank, indicating that you have sufficient funds to complete the transaction, may be sufficient.
Do you have to reveal how much?
For many would-be buyers, showing an AIP letter is not a big deal; where some have doubts however, is revealing just how much they have been approved for.
DNG, for example, will accept an AIP which doesn’t disclose the mortgage approval amount.
“It is absolutely the case that the mortgage amount can be redacted,” says Murgatroyd, adding that a so-called “letter of comfort” from a solicitor or bank, which indicates that the potential purchaser is in a position to complete the transaction – without referencing the amount of funds available – would also be acceptable.
A spokeswoman for Sherry FitzGerald, on the other hand, says a letter of comfort is acceptable, "so long as the letter confirms the purchase price agreed".
When it comes to redacted AIPs, she says that “in theory” this is acceptable, but notes that the data in any case is not saved.
“We don’t retain the letter once we have seen it – we destroy the letter. We just note that we have [had] sight of proof of funds,” she adds.
At Savills, a spokesman says that you need to show proof of funds “to the level of the offer only”.
“We only require confirmation that funds are available to purchase a property at the price level they are looking at,” he says.
What about restrictions on viewing?
While Covid-19 restrictions are being eased at pace, some still apply to house viewings. In short, these mean that to view a new property you’ll have to make an appointment first; two people will be allowed from different households, or a maximum of four when from the same household; and appointments have a time limit to avoid congregation and to allow time for cleaning of touch points in the property.
