CryptoassetsNov 16 2021

Crypto enquiries cause headaches for brokers

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Crypto enquiries cause headaches for brokers
Photographer: Paul Yeung/Bloomberg

Nationwide was the only high street lender to have accepted cryptocurrency, doing so on a case-by-case basis until earlier this year. It has told FTAdviser it now no longer does so, amid a wider review of the bank’s interaction with the digital asset.

With only a handful of specialist lenders now accepting cryptocurrency as a means of funding a mortgage deposit, brokers are finding it difficult to deal with the increasing number of applications or enquiries on the subject. 

Some do not even try, for fear of lenders striking them off lending panels if an application is found to be backed by funds which don’t pass anti-money laundering checks.

“[Cryptocurrency] is featuring increasingly regularly in new purchase enquiries of late. Not to fund the whole deposit for the most part, but a part of it, in the same way as borrowers may sell stocks and investments," said Chris Sykes, associate director and mortgage consultant at brokerage Private Finance.

“Times have changed considerably and cryptocurrency is very much part of the mainstream especially with younger borrowers,” he added.

In June the Financial Conduct Authority estimated 2.3m adults held cryptoassets - up from 1.9m last year.

Sykes said those with crypto-derived deposits might be forced to seek out specialist lenders who often charge higher rates.

At least one mainstream lender, Coventry Building Society, does currently accept cryptocurrency gains as part of a mortgage deposit. Others, such as Santander, have accepted crypto-funded deposits on a case-by-case basis in the past, but brokers are yet to see much success on the whole.

Aaron Strutt, product and communications director at brokerage Trinity Financial, said he was aware of “lots of people” who were “very frustrated” due to the fact they earn a lot from cryptocurrency investments, but when they came to buy a property, they couldn't find lenders which accepted their profits.

“And even if they do, it’s massively on a case-by-case basis,” Strutt explained. “I’m not sure how many mortgages we’ve actually got through on this basis.”

He continued: “We’ve had this conversation for so many years, and it doesn’t seem like lenders have come out with a set policy.

“There’s definitely demand. It’s just tricky and there is no guarantee the deal will go through. We often see buyers finding another way around it, such as borrowing from mum and dad.”

This would see the first-time buyers’ parents take on the cryptocurrency gains, and gift back an equivalent amount from a non-crypto source.

AML checks

Nationwide told FTAdviser it changed its position on cryptocurrency in the summer on the basis of the digital asset's “growing prominence”. 

The building society said the spike in popularity posed an “increasing challenge” to assessing and verifying the source of a crypto-funded deposit, a process Nationwide must complete in line with anti-money laundering regulations.

The lender added: “We only ever received a very small number of requests to accept cryptocurrency as a mortgage deposit”. It would not clarify when the bank first began accepting these kinds of applications.

Graham Taylor, managing director of financial advice firm Hudson Rose, said he appreciated lenders’ conservative appetites, due to the potential for funds to have come from criminal activity, and the possibility that individuals speculating in these markets take a more reckless approach to investment.

But he said a lot of this risk could be mitigated with evidence of a build up of the investment over time. 

“Cryptocurrencies such as bitcoin are becoming more mainstream so I would hope that, with the right checks, more lenders might be willing to accept this as part of an overall level of capital - maybe just not 100 per cent of the deposit.

Sykes’ brokerage has recommended potential first-time buyers who have been investing in cryptocurrency to get together a deposit to cash in their gains six to 12 months before they apply for a mortgage. That way, it said lenders were unlikely to ask for documentation from that long ago.

Some developers are open to considering payment in cryptocurrency. Billionaire property developer Nick Candy listed his two-storey 1 Hyde Park apartment back in April, telling Bloomberg in an email he was open to accepting bitcoin and ethereum. 

Risk for advisers is ‘great’

Not all brokers are in favour, even if they have seen an uptick in application requests.

Lewis Shaw, founder of brokerage Shaw Financial Services, said he had received no requests for crypto-funded deposits in seven years. But in the last six months, he has been sent two.

“The onus on us for the deposit is huge,” said Shaw. “Deposits are the biggest element of fraud in a mortgage transaction. Layering money into the system via deposits is a huge issue and it’s where a huge part of money laundering comes from in the system.

“People don’t realise you can’t give chunks of money away without checking where it’s come from.”

Shaw wasn't confident he could always prove to a lender that his client had paid gains tax on a transaction. “A lender could prove advisers haven’t done due diligence,” he explained.

“Even if mortgage lenders say they may accept these deposits, you only need one lender to take you off their panel, and word will spread around. For the sake of one mortgage, it isn’t  worth it.”

Asked whether he might change his stance, Shaw said: “I have a zero-tolerance policy with cryptocurrency. Transactions via the blockchain can be made anonymous - so in principle, you can’t find out where the funds have come from and the audit trail vanishes.”

ruby.hinchliffe@ft.com