Let’s delve into the world of cryptocurrency and buying houses. Is it possible to buy a house using digital currency, taking the risk of using cryptocurrency into account? Are there any practical examples to support the topic of discussion? Learn about this and more in this blog.
From sticks and stones to binary, the concept of currency has come a long way. From its origin in 2009, cryptocurrency has been a contentious topic, on how volatile it is, on its transparency and anonymity, and most importantly, on its legality. From its humble, and almost dark beginnings, Bitcoin, the first ever cryptocurrency is now accepted by over 15,000 businesses, with many more accepting other cryptocurrencies. Virtual currencies are constantly expanding and growing to be a viable alternative to the traditional payment options today, with over 4000 different cryptocurrencies in use. One of the main incentives for using a cryptocurrency is the minimal transaction fees.
In simple terms, cryptocurrency is nothing but virtual money which could be effortlessly exchanged for real products and services. The first ever cryptocurrency, and most used is Bitcoin. But the concept of digital currency was in vogue from the establishment of Digicash in 1990, as the first electronic cash company.
United Kingdom’s approach to cryptocurrency could be best defined as cautious. Albeit declaring cryptoassets as property in 2020, the country still lacks any definitive laws or regulations on the matter. Cryptocurrency is not recognised by the UK as a form of legal tender. The UK Jurisdiction Taskforce (UKJT) has published a consultation paper to identify key issues of legal uncertainty regarding cryptoassets which stated that ‘there were strong grounds on which cryptocurrencies should be recognised as property.
The UK’s Anti-Money Laundering system is modified to capture financial activities involving cryptocurrencies. The Economic Crime Plan mandated that from January 2020, the Financial Conduct Authority (FCA) will be the Anti-Money Laundering and Countering Terrorist Financing (AML/CTF) supervisor for firms carrying on certain cryptoasset activity. FCA also imposed an active ban on the sale of crypto-derivatives to retail customers and attempted regulating the existing cryptocurrency by the creation of a ‘temporary registration regime’.
Cryptocurrency in Conveyancing
Using, legitimising, and documenting cryptocurrency is not an easy task. But a bigger task would be to find a lender and a conveyancer willing to accept and work with cryptocurrency. The responsibility of verifying the source of wealth, and to ensure the legitimacy of the money is on the conveyancer. Majority of conveyancing solicitors would find it hard to confirm the same in the case of cryptocurrency and would require technical help.
You can only buy a house with cryptocurrency if the buyer and seller are on board. There are two approaches to buying property using cryptocurrency. The first approach is to sell the digital currency for cash if the seller doesn’t accept the cryptocurrency. If the seller is willing to accept the payment in digital currency, come to an agreement, decide the final price and how to pay companies (if any) that won’t accept payment in cryptocurrency.
Most mortgage lenders find it a challenge to use cryptocurrency unlike the conventional pound deposit. Also, in the conventional house buying scenario, mortgage lenders are likely to report any cryptocurrency involved as an odd or unusual deposit, which would demand further investigations and has a high probability that the whole transaction falls apart.
Taking the risk revolving around cryptocurrency into account, many lenders and conveyancing lawyers are unwilling to accept cryptocurrencies. An article in the Financial Times stated that many high street names, like Nationwide, UK’s biggest building society, NatWest, and Barclays are re-assessing their policies on cryptocurrencies.
The future of cryptocurrency in the residential property market is looking bright and experts claim that the majority of interest comes from young people. If you are thinking of investing in cryptocurrency and using it to buy property in the UK, speak to the estate agents early on so that they can make sure all the other parties involved are agreeable to this.
Buyers who want to buy their dream house using cryptocurrency but are afraid of the digital coin’s fluctuating nature will find a ray of hope in this example. The first house bought with Bitcoin was in December 2017 in Essex. It was bought for just 63 coins, equivalent to £350,000.
After reading the above points, are you thinking of buying property using cryptocurrency, like Bitcoin or Ethereum? Well, may the odds be in your favour. Hopefully, it is not far when cryptocurrency would be a legal tender used on a daily basis and when conveyancing, like other economic segments would be forced to embrace this newcomer in money.
While the future looks very promising for cryptocurrency, until the regulators provide more guidance for conveyancing firms, it is unlikely that majority of firms, including us, will have the know-how to check source of wealth and source of funds on cryptocurrency. If you are thinking of buying or a selling a property using cryptocurrency, please get in touch to discuss how we can assist.