It seems like a smart idea. Some of those who have invested in bitcoin, a virtual currency that has seen incredible gains over the past year, are considering using their profits to fund house purchases. With an increase of nearly 1,500% posted since this time last year, many are hoping their gains will provide a handy property deposit.
But not so fast. According to recent reports, bitcoin investors are coming up against concerns from lenders and brokers alike. One of the main advantages of using cryptocurrencies such as bitcoin is that the holder of the coins remains anonymous. This means the source of the transactions cannot be traced or accounted for. While most people who have bitcoins will not have done anything illegal to get them, the currency is known to be used by criminals to hide their tracks.
Why does bitcoin pose a problem for would-be property buyers?
Lenders are required to comply with money laundering regulations when approving loans for their customers. They must know where the money used for a deposit comes from. Proof could come in the form of bank statements confirming the cash is held on deposit. If parents or other relatives are providing cash, they must provide a letter confirming this.
But since bitcoin is a virtual currency and the only evidence of it is the digital address it is held at, there is no way to confirm the currency belongs to the person who says it is theirs. There is also no way of confirming it has not been laundered.
Does this apply to all lenders?
No. While some are flat-out refusing to consider cryptocurrencies as sources of a deposit, others are more open-minded. With that said, those that would consider bitcoin still need extensive proof the currency was not obtained illegally. That proof could be impossible to provide, thanks to the secretive and anonymous nature of digital currencies.
“It does present a predicament for many bitcoin investors who were hoping their profits would help get them onto the housing ladder,” said Darren Pescod, CEO of The Mortgage Broker Limited. “I’ve heard of one person with a £40,000 deposit for a property, derived from bitcoin investments, and it was all but useless to him. It’s understandable banks and building societies need to have proof the money hasn’t been laundered, but it does pose a problem for investors. They have the money they need for a deposit, yet they cannot use it.”
Experts have suggested it might be possible to turn the bitcoin into cash and to pay the proceeds into a bank account. Once it has been sitting there for a few months, it could be accepted. However, if the lender asks for proof of where the money came from, it would return the would-be buyer to square one.
The newness of virtual currencies means there is no precedent for this situation. With money laundering rules prevailing, this isn’t a problem that is likely to go away soon.
View all posts by The Mortgage Broker 
