A 2022 government survey reports that around 5 million people in the UK hold, or have, held cryptoassets, with cryptocurrencies being the most commonly held type.
So, it stands to reason that some forward thinking individuals in the UK might be toying with the idea of using cryptocurrency to buy a property outright, or even using cryptocurrency as a deposit for a mortgage.
But can you really buy a house in the UK using cryptocurrency?
In this article, we'll explore the question in depth, looking specifically at the legalities, practicalities, benefits and potential risks of using cryptocurrency to purchase a property.
Can cryptocurrency be used to buy property?
Cryptocurrency can be used to buy a property...kind of.
But first, you have to sell or exchange the cryptocurrency, because it's not classed as legal tender.
It's also worth noting that, when you buy a property using cryptocurrency, there are likely to be a few more compliance checks involved because of anti-money laundering regulations.
So, in short the real answer is both yes and no. If you have cryptocurrency, you can exchange it (i.e. sell it) for pounds sterling and then buy a house with the money you get from the exchange. But you aren't actually giving a seller of a property cryptocurrency directly.
How to buy a property using cryptocurrency
Convert the cryptocurrency to pounds sterling
To convert cryptocurrency to pounds in order to buy a house, you can use a reputable centralised exchange, a broker or a peer to peer platform.
This step is essential because at the moment you cannot exchange cryptocurrency for a house. However, it's important to do your due diligence in choosing an exchange as there have been a lot of recent high profile cases where cryptocurrency exchanges have been found guilty of fraud.
Collate proof of funds
When you buy a property, your solicitor has to carry out anti-money laundering checks to be sure that the funds don't come from any criminal activity.
When it comes to these checks as they relate to cryptocurrency, a solicitor will check:
That the initial funds used to buy the cryptocurrency came from clean and lawful sources, such as your wages.
That the money was invested in cryptocurrency by looking at bank statements that show the transfer from a bank account to a cryptocurrency exchange.
That that investment did generate the funds being used to pay for the property. For this they might need to see how the crypto investment performed over time.
That the crypto provider is reputable and regulated by the Financial Conduct Authority (FCA).
That the money from the crypto investment is deposited in the same account being used for the property purchase.
For this, a solicitor is likely to want to see evidence such as:
Wage slips;
Bank statements;
Investment records and performance.
As the blockchain and cryptocurrency are relatively new areas, a solicitor may be wary about the risks involved and undertake further checks to verify the legitimacy of the funds.
Therefore, it's super important to have well-documented proof of funds, especially when money has been moved around several times and converted into different cryptocurrencies.
Can you use cryptocurrency for a mortgage deposit?
Some mortgage lenders in the UK allow you to use profits from cryptocurrency to pay for a mortgage deposit.
Again, mortgage lenders who do allow this will want to see solid proof that the money being used to pay for a mortgage deposit didn't come from money laundering or other criminal activities.
It's worth noting, however, that a large majority of mortgage lenders may outright reject a mortgage application where the deposit is funder by cryptocurrency profits that have been exchanged to pound sterling.
The reason for this is because the very nature of cryptocurrency and the blockchain make it difficult to verify where money has come from. Not to mention the fact that the market is currently unregulated, which is enough to make any bank or mortgage lender nervous!
Can cryptocurrency be used in an affordability assessment?
An affordability assessment is when a mortgage lender looks at your income vs your outgoings to decide whether you can afford the monthly payments on a mortgage or not.
At the moment, lenders won't accept proceeds from cryptocurrency investments in an affordability assessment.
The biggest reason for this is because the cryptocurrency market is quite volatile, which can affect the value at any given time.
Can you get a crypto-backed mortgage in the UK?
With crypto-backed mortgages, you don't have to sell crypto to buy a house, but you can use it as collateral to buy a house.
These types of mortgages are often use to avoid paying taxes, like capital gains tax. Basically, if you have a crypto-backed mortgage and you keep up with your payments, you'll still have the cryptocurrency at the end of it.
On the flip side, if the value of cryptocurrency takes a nose-dive, it could mean you don't have enough collateral to cover the mortgage.
Crypto-backed mortgages, while currently a thing in the US, haven't made their way to the UK just yet. But watch this space.
Get help with buying a house from trusted conveyancers
So, there you have it. While you can't buy a house outright with cryptocurrency, you can use the profits from cryptocurrency investments to buy a property and, in some cases, get a mortgage.
That being said, crypto is relatively new, and unregulated, which means it comes with risks you should understand before investing.
What's more, not all solicitors or mortgage lenders like dealing with crypto because of anti money laundering regulations. So, that's something to be aware of to.
To get help from the UK's best solicitors and conveyancers on buying a house, or gain an insight into the legalities around tax and cryptocurrency, get in touch with our legal assessment team for a free no obligation quote today.