What is Offer Substantiation?
Estimated reading time 9 minutes
Over the past few months, we have been covering many of the wide-ranging terms used in the property industry. From deeds of easement to mortgage porting and much more, we like to think we have covered a few of them and made your next foray into buying or selling property a little easier to understand.
The thing is, there is still plenty more for us to cover, so this month we look at offer substantiation. Offer substantiation is simply the process of verifying who you are and that the funds to purchase the property are there.
But surely there is more to it than just that? Well, sort of, let Gaffsy explain.
What does offer substantiation mean?
Offer substantiation is the legal process that all estate agents must go through when an offer on a property is accepted. It stems from HMRC so it is not just a box-ticking exercise, it really matters.
When offer substantiation is carried out, it will check your identity, check that the funds are available, and ensure that there has been no identity theft or illegal activity in relation to the money you are using to buy the house. Of course, to be able to check this, the estate agent will need some documentation from you to ensure that everything matches up as it should.
What documents does a property buyer need for offer substantiation?
When you are buying a home, you will need to prove not just who you are but that you also have the deposit and a mortgage agreement. This will need to be provided by anyone that is going on the property deeds. Failing to provide these documents when asked can see significant delays in the process of purchasing your new home so it is best to prepare them in advance.
The estate agent will need:
- Proof of identity via a certified ID
- A certified proof of address
- Proof of the mortgage
- Proof of the deposit
Having a document certified means that it has been seen and had everything on it confirmed by someone the estate agent lists as professional. These are normally people that fall under the following job title:
- Nurse or doctor
- Managing Director
- Mortgage broker
The Post Office is also able to certify documents for you, but it may incur a fee.
What ID can be certified by a professional?
For the estate agent to be able to accept the certified ID as part of their checks against your identity, it must be one of a limited selection. One form of photo ID will be accepted yet should you not hold any form of photo identification, you would have to provide two forms of certified ID.
The photo ID currently accepted to be certified are:
- Full UK or overseas Passport
- UK photocard driver’s licence
- EU drivers photocard licence
- UK firearms licence
- UK Military ID
- EEA State Member ID Card
- Biometric Residence Permit
Any of these ID options that you choose must be valid, issued by the relevant authority and signed should it be necessary. Nothing on the documents should be altered, crossed out or missing, otherwise, they will not be accepted.
If you do not hold any photo ID, you will need to use 2 ID items to prove your identity. Within these, there are certain requirements. As with photo ID, an estate agent will not be able to carry out the relevant checks with incorrect ID and this could disrupt your chance to purchase the property.
With these forms of ID, you must use the following and ensure they match the criteria shown below:
- Bank statement dated within the last 3 months. Original document only and not a downloaded copy.
- Valid National Insurance Card
- A Council Tax bill for the current year
- An original copy of your UK birth certificate
- A benefits or pension letter dated within the last 3 months. Original document only and not a downloaded copy.
- An in-date medical certificate or NHS medical card.
- A blue badge for disabled drivers that has been stamped by the local authority
Proving your address for offer substantiation
As we mentioned earlier, everybody on the property deeds needs to submit their own proof of identity, address, and funding. Even if you live at the same address as other people buying the property, you will need to provide your own documentation.
To prove your address, you will need just one of the following items, but it cannot be the same as the non-photo ID you used for proof of identity.
- Bank statement from the last 3 months. Original copy only and not downloaded.
- Council tax bill for the current year
- An in-date TV licence
- A valid and signed driver’s licence
- A mortgage statement from the last 3 months. Original copy only and not downloaded
- A utility bill from the last 3 months. Original copy only and not downloaded
- A Homeowners Insurance Policy. Original copy and not downloaded
- Housing benefit documents from the last 3 months. Original copy only
- A letter from your bank or employer from the last 3 months. Must be on letterheaded paper and confirm name and address
- A tenancy agreement dated within the last 6 months, signed and executed
- A letter from the NHS from the last 3 months on letterheaded paper
Whilst this list is fairly comprehensive, many people still think other official documents can be used. Unfortunately, they cannot, and some of the most common that people try to use are:
- Letters from HMRC
- Phone bills
- Letters from a solicitor or accountant
- NHS medical cards
These will be rejected by the estate agent and stall your property plans so only use the approved list to make sure nothing is stalled when it comes to the substantiation process being completed.
How to provide proof of funds to the estate agent for offer substantiation
With proof of who you are and where you currently live, the estate agent will only need to see that you have proof of funds. Depending on how you accumulated the money for the property will determine how you must prove it. The proof of funds received via a gift for example varies from the proof of funds when it comes from a mortgage or sale of another property. There are five common ways to fund the purchase, each with varying stipulations to ensure you pass the process of substantiation.
1. New or transferred mortgage
When granted a new mortgage you will have received an agreement in principle (AIP). This shows how much the lender will be willing to let you borrow. Simply provide the estate agent with a statement that shows the lender will lend the amount that the AIP states based on your current circumstances. It must be dated within the last three months.
With this, you will also need to confirm your LTV (Loan-to-Value) ratio. This will show that between the deposit and the mortgage, the entire value of the property is covered.
If the mortgage has been transferred, you will just need proof from your lender that they are willing to transfer the mortgage.
Bank statements will also need to be shown to confirm that you have enough funds to cover the deposit value.
If you sold to a cash house buyer, for example, you would have funds that you can immediately put into the new property. Proof of this sale and the funds from it will need to be given to the estate agent. You may have also received cash from an inheritance, an insurance claim, or a divorce settlement for example. This will need to be proven as the estate agent will want to see that the money comes from a legitimate source. When you have come into cash in this way, you should provide bank statements as well as any documentation that may prove the deposit of the funds.
However, should you have sold via traditional means, you will need to show the estate agent a memorandum of sale as well as a copy of the mortgage redemption statement that shows how much equity remains in the property. These must be complete documents with no sections missing, altered, or falsified. Ask your estate agent what they need it to show so that nothing is missed out.
3. Gifted funds
If you have been lucky enough to have received the cash as a gift from a friend or family member, the funds will need to be proven to be legal.
This should come via a letter that indicates they are willing to lend the money to you. It must include your name as the recipient and theirs as the person gifting it. The amount being gifted must also be shown and the letter or email must also be dated.
They will need to provide evidence of the funds and where those funds are coming from. Finally, they will need to provide a photo ID of themselves. This ID will not need to be certified though.
So that’s it. Offer substantiation is all about the estate agent asking you to provide documents so that they can check you are who you say you are, and the money being used is from a legitimate source.
Should you be looking to move house and already have an eye on a property that you want to buy, you could consider selling yours to a sell house fast agent. This chain-free way to sell even covers your legal fees. We buy any home so even if you feel a sale is unobtainable in the current market, with Gaffsy it will be. In fact, we guarantee a sale and can have funds in your account in as little as seven days. Why not get a free cash offer today to see how much you could be getting for your home?