Is crypto really the answer to our property problems?

Once upon a time, if we wanted to save for a deposit, we plugged as much as we could every month into a savings account – one that paid the highest interest rate we could find, preferably an Isa too, for those all-important tax breaks.

Those days it seems, or at least some in the cryptocurrency market claim, are long gone.

Despite the breathtaking volatility in this unregulated world, or perhaps because of it, 1.2 million adults under the age of 34 have already invested. For almost half of those regularly investing or prepared to, the main reason is saving for a property deposit, data from cryptocurrency exchange Luno suggests.

Crypto advocates are quick to argue that most investors are sensible, usually putting only small portions of their investable money into such unregulated digital assets that aren’t currently supported by governments.

“It’s clear from our research that young people understand that cryptocurrencies aren’t just opportunities to get rich quickly,” says Sam Kopelman, country manager northern Europe, for Luno.

“They understand the risks and they understand the relative volatility. Our data shows that young Brits aren’t making crazy bets on cryptocurrencies but are instead choosing to commit a small portion of their savings to crypto in the ever-harder quest to get on the first rung of the housing ladder.”

It certainly is hard. Last week, the latest house price report from Halifax showed prices were still increasing by an average of £4,500 a month in September, outstripping wage growth in huge swathes of the country despite the end of the stamp duty break.

So news of this week’s Bitcoin surge in what appears to be another bull run, for example – taking total gains to 32 per cent in October alone – could be music to would-be buyer’s ears, even with the ever-present possibility that the notorious volatility of such assets could wipe those gains out in a matter of hours.

Ross Thompson, finance and accountancy lecturer at Arden University, says he can see the advantages of using crypto to save for a home and or even, possibly, in the purchasing process itself.

“There are two ways you can use crypto with real estate purchases: you can pay in bitcoin or another cryptocurrency, for the property or save in bitcoins and convert to Fiat currency [traditional currency regulated and supported by a central government].

“It can be a quicker investment vehicle to save for a property given the spectacular appreciation of certain cryptos. It also saves on intermediary fees such as bank transfers and can often be quicker due to the smaller level of intermediation and red tape which then speeds transactions up.”

Others aren’t convinced at all – particularly as there are strict money laundering rules around proving how funds for a property purchase have been sourced, even if you cash out first.

“When obtaining a mortgage, where purchasers or borrowers want to use cryptocurrency as a source of deposit, there are not many lenders that accept it or will handle it on a case-by-case basis,” says Mark Harris, chief executive of mortgage broker SPF Private Clients.

“In these situations lenders will be looking at the acquisition and disposal of the crypto that will form the deposit (or at least in part).  They will be looking at how and when the profit was made or realised and potentially tax paid on the profit.

“This could increase the time the application takes as no doubt the lender will want to perform greater scrutiny over the records and statement available either from the bank or platform that the borrower used.”

David Gillespie, mortgage specialist at online broker Habito, adds: “Some lenders would accept cryptocurrency for house deposits such as Halifax, Digital and Barclays but you need to cash out and hold the deposit in a UK bank account.

Others – TSB, Skipton and Nationwide – said they might accept a deposit that came from cryptocurrency gains, but “you should be ready to prove that it’s definitely your money, what funded your original investment in cryptocurrency, and that the funds are now held in a UK bank account”.

Lenders might also review how much money was being spent on cryptocurrency investment overall, as it could be viewed as a form of gambling: getting caught up in chasing quick wins could negatively impact your overall money management.

There are also tax and other implications to consider warns Helen Cox, partner at law firm Fladgate.

“As far as HMRC are concerned you would be entering into two transactions: the property purchase, and the disposal of your cryptocurrency.

“On the property purchase, you would have to pay stamp duty land tax (SDLT) just as you would if you bought a property for cash,” she says. 

“However a key difference where cryptocurrency is involved is that the amount of SDLT payable would be based on the sterling value of the cryptocurrency at the date of completion of the property purchase. This means that if there is a gap between exchange and completion, you would not know exactly how much SDLT is due until you reach the completion date and can establish the exchange rate.

Meanwhile, when it comes to disposing of your digital assets, you would be taxed as if you had sold your cryptocurrency for an amount equal to the sterling value of the property. 

“If your cryptocurrency was sat at a significant gain, this could result in a big capital gains tax (CGT) bill or even an income tax bill if you are a sophisticated cryptocurrency trader,” adds Cox.

“Of course any SDLT and CGT needs to be funded with cash – HMRC won’t take payment in cryptocurrency!”