We take a look at the world of cryptocurrency and purchasing houses. We ask whether it is possible in most cases given the additional risks associated with Bitcoin.
Alternative currencies have experienced a boom, bust, and boom again in recent years. These currencies can be very lucrative for investors, but they are also notoriously volatile and unpredictable.
Are cryptocurrencies, the most well-known being Bitcoin, legal means to buy property in the UK?
We take a closer look at the future of property and cryptocurrency.
Are digital coins possible to purchase a house?
Recent commentary indicates that 12 years after the first bitcoin launch, it is still very difficult for investors to use their digital funds to buy a house.
It can be difficult to document bitcoin the same way as a traditional sterling pound deposit. Mortgage lenders are instructed to report any unusual or large deposit. This is something crypto investments could fall foul of and will require further verification.
Due to the additional risks and suspicion involved, buyers may discover that conveyancers and lenders are reluctant to accept cryptocurrency when purchasing a house.
According to Daniel Browne, a senior associate of the London-based law firm Kingsley Napley recently, there is very little demand for cryptocurrency sellers in the UK. If people wish to use their cryptocurrency investments for a house purchase, they will need to convert the cryptocurrency into sterling or other government-issued currency.
A lot of people are reluctant to accept cryptocurrency because it is associated with criminal activity, including money laundering.
A recent advice column by the Financial Times stated that although most lenders won’t lend money if some or all of the deposit was made from crypto proceeds, there are some high-street names who are willing to lend. Nationwide, the UK’s largest building society, is one of these lenders. It is a good idea to start looking for crypto-friendly lenders as soon as you are considering buying a house.
Even if you have reached this point and found a lender who is willing to accept Bitcoin or Ethereum, buyers will likely find it difficult to find a conveyancer who is willing to accept crypto.
Because conveyancers must implement strict money laundering regulations to identify their clients and ensure that funds received from them are not proceeds of crime,
According to the FT advice article, “This means that it is necessary to understand the origin of crypto assets. This includes how they were traded and with whom.” This usually involves the appointment of an expert who can conduct a complete audit on the crypto proceeds being used. This audit can be used by the conveyancer to make a decision about whether the transaction is safe.
Although there are a few firms that do, they are rare and hard to find. Before you decide to use crypto funds to purchase a house, make sure that you have a conveyancer and lender who are willing to accept this method of payment.
Is it possible?
Although there are a few cases where homes have been purchased using cryptocurrency in the UK they are not the norm. It is not common to buy homes using Bitcoin, as many might have expected.
The Collective, a co-living brand that accepts Bitcoin deposits and rents in the rental sector, started doing so in 2017. However, it isn’t certain if it is still true and has not spread to other providers in this sector.
In the meantime, transactions via cryptocurrency in the sales market have been rare and resulted in some very unique stories.
In December 2017, property developer Go Homes was the first to sell homes in Britain using Bitcoin. However, some agencies have stated that they will also accept Bitcoin as a USP. Many luxury properties have been put up for sale by only accepting Bitcoin offers.
It is still a niche market, and many agents, lenders, and conveyancers are not aware of it. Not to mention the extra diligence and verification required to sell a house.
What about the future?
Many believe that with millenials being more inclined to invest in Bitcoin than traditional stocks and share or saving money at high-street banks, that mortgage lenders will have to accept crypto more easily to meet increasing demand.
Charles Schwab UK published research earlier this year that found that more than half of UK young investors are now trading cryptocurrency, and another 70% consider it a good investment. The Financial Conduct Authority has spent considerable amounts on a campaign to warn of the dangers associated with investing in cryptocurrency.
It is not easy to regulate crypto companies. There can also be a reluctance of regulators to work with them, making the market more vulnerable to criminal operators. Many high-profile cryptocurrency scams have exploited the fact that many view it as a fast, easy and lucrative method to make a lot of money.
Chris Sykes, an associate director and mortgage advisor at Private Finance told FT Adviser he doesn’t think UK lenders will accept Bitcoin anytime soon.
“Often, US mortgages operate very differently from UK ones, according to bank statements of US clients.” He said that while UK mortgages are paid 99/100 via direct debit to the lender (the US, however), it appears that the applicants send the money on a monthly basis to their mortgage lender.
Only a handful of UK lenders allow crypto to be used as a deposit source and even less allow it to be used for mortgage repayments. It will be difficult to purchase a home in the UK using crypto until it becomes mainstream, stable, trusted, and mainstream. This is especially true given that many conveyancers don’t accept crypto and few developers and agents are willing to take it into consideration.
You may be able to find a lender or conveyancer who will help you if you are a buyer trying to finance your purchase using crypto. However, this can take a lot of work and it is unlikely that you will get the results you want.
While the traditional method of buying with sterling pound sterling is still the best, it could change if cryptocurrency grows at the same rate as it has in the past decade. Buyers and sellers of tomorrow may be more comfortable dealing with digital coins.