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Guest Blog: Buying a Home? Beware the Complexities of Crypto!

By Tom Ansell, head of residential conveyancing at law firm, Shakespeare Martineau 

Cryptocurrency is entering the mainstream, with an increasing number of people choosing it as part of their investment strategy. In fact, 9.8 million Britons owned digital currencies in February 2021. However, there remains an air of mystery surrounding it, as well as concerns about its security, which could throw a spanner in the works for those looking to buy a home using funds generated by cryptocurrency.

While people in the UK can legally invest in cryptocurrency, it is not currently official legal tender. As a result, the rules and regulations surrounding it are unclear. Crypto companies are also known for being reluctant to work with regulators, believing that doing so could limit innovation and growth.

Conveyancers are under strict requirements, known as Anti Money Laundering (AML) regulations, to check that funds have come from an individual’s own resources. While these are open to interpretation, they do mean that conveyancers must trace back an individual’s finances over a set time period, as well as look out for any unusual activity. For example, if a large amount of money generated through cryptocurrency appears in a person’s bank statements, then it would need to be investigated.

However, it is incredibly difficult to trace digital currencies, meaning their origins often cannot be confirmed. This instantly raises alarm bells for conveyancers, as cryptocurrencies could be ideal for hiding fraudulent activity.

Another element of the AML regulations involves confirming that the individual has both a source of funds and a stable source of wealth. While cryptocurrencies can provide the necessary funds for a deposit, their volatility means it cannot be classed as stable. Only recently, the price of Bitcoin collapsed, falling by more than $10,000. Although the house buyer might be able to afford the deposit one day, they might not be able to the next, if prices plummet unexpectedly. It is also difficult to confirm whether a person will be able to afford the home in the long run, if they rely largely on cryptocurrency as a form of income.

Due to these various risks, many conveyancers are unwilling to handle deals involving cryptocurrency, whether it has been withdrawn into legal tender or not. Whether the individual’s conveyancers are willing to go ahead also isn’t the only issue. Everyone in the chain must be comfortable with cryptocurrency being used. If even one link in the chain is unwilling, then the sale cannot be completed.

At present, there isn’t a lot that people can do to avoid these issues. Only when digital currencies become more mainstream and better regulated will they be accepted more freely by the property market. However, for those who are looking to use crypto-generated funds in the house buying process, there are a few steps that can be taken to make them as low-risk as possible.

First is to cash out the cryptocurrency early in the process. That way it loses its volatility and transfers into a stable source of funds. It is also vital for people to prove that they can afford the home long-term, without relying on cryptocurrency. Having a regular source of income shows that it is simply a top up, and that it isn’t necessary for the person to own the home.

Regarding traceability, there is not much that can be done to prove this. Bank statements and screenshots showing when the investment occurred may help to settle the minds of conveyancers, but it isn’t a guaranteed way to prove the legitimacy of the funds.

As cryptocurrencies continue to increase in popularity, it is inevitable that the property market will one day have to evolve to handle purchases involving them. To prepare for this, the sector should assess what needs to change in order to do so securely. It may be that intermediary firms are created, which can dedicate the time needed to ensure that the funds are legitimate, before they are transferred to solicitors. 

Already, a number of mortgage lenders are beginning to accept crypto-related funds, including Nationwide, Halifax and Barclays, showing that the shift is starting.

However, until the majority of firms and lenders become comfortable with cryptocurrency, it will remain a challenge to use it to fund a home. The main hurdle is the lack of regulations, and unless crypto companies are willing to work alongside regulators, it is likely that digital currencies will remain a risk that many conveyancers are unwilling to take.