So too have conversations around the possibility of other means of payment such as digital currency.
Previously associated with people making clandestine purchases, Chancellor Rishi Sunak’s suggestion of Britcoin thrust the idea of digital currency further into the mainstream.
If it happens, Britcoin would be what’s known as stablecoin. This is a digital currency that has its value linked to an external asset, such as gold or fiat money. Fiat money is a government-issued currency. Its value can be based on supply, demand and the stability of the government issuing it.
So this week, Mortgage Solutions is asking: Is the mortgage industry anywhere near ready to accept cryptocurrency as a means of payment?
Dan Salmons, CEO of Coadjute
There is a big difference between a publicly traded cryptocurrency like Bitcoin, and stablecoin like a Bank of England ‘Britcoin’.
I personally can’t see why you would use a publicly traded cryptocurrency like Bitcoin for a house purchase, it’s totally unsuitable. First, it is highly volatile – I don’t want to buy a house for 10 Bitcoin thinking it is £458,580, only to find on completion it is £615,720.
Second, public cryptocurrencies tend to be secretive, a real problem when it comes to know your customer (KYC) and anti-money laundering (AML) regulations.
Stablecoins are different. When issued by a reputable issuer like the Bank of England and pegged to a currency like the pound, the exchange rate is reliable.
They can also include high levels of security. Best of all, stablecoins are basically ‘programmable money’. This means they can be programmed only to be usable for a house purchase, by one person, or even for a specific house. It’s the ultimate in security.
So will we see stablecoins used for home purchase?
I think we will, and indeed Coadjute is already working on it. We don’t see them as a replacement for cash, but a way of enabling quicker mortgage completions at any time with a hugely reduced risk of fraud.
As for brokers, I think it will be important for them to keep up with developments and be able to advise their customers on the new options.
There’s a lot of hype at the moment – like Bitcoin mortgages – that I don’t think will ever become mainstream.
However, I see real benefits from ‘programmable money’, and when the dust settles do believe that stablecoins in some form will become part of the future landscape of the mortgage market.
Conor Murphy, CEO of Smartr365
It would be difficult to use genuine cryptos for mortgage deposits, as they would likely fall foul of money laundering and source of funds regulations.
This has been a widespread issue when considering integration with the traditional financial system.
Britcoin is somewhat different, though, as that would be a stablecoin, so the value would be pegged to the pound.
It would presumably also bring stronger regulations around issuance and usage to combat illicit fund flows, so that’s something with a bit more promise.
As stablecoins like Britcoin would be pegged to sterling or another fiat currency there is an element of security there, so provided the AML checks were met, this should be fine and relatively simple.
The use of other cryptos is very different though, and the greatest risk and requirement for advice in my opinion would be around price fluctuations in the value of the coin.
If the value of the currency or its relationship to sterling changed between the point of exchange and completion, this would put the buyer in a precarious position. This is something brokers would need to know about and bear in mind.
The typical use of cryptocurrency does raise concerns around fraudulent activity.
Brokers and lenders would need to see the full source of funds to ensure the currency was obtained legally, even more so than with ‘normally funded’ transactions.
Cryptocurrencies do depend on distributed ledger technology, where – in theory – you can see every transaction back to the very first one, supposedly solving this issue.
However, whether lenders or solicitors would trust that ledger is a different issue. With Bitcoin or Ethereum, the answer is probably. But for some of the others, with small user numbers and thin trading volumes, it’s less likely.
Aaron Strutt, product and communications director at Trinity Financial Group
We get quite a few enquiries from people saying they’ve got Bitcoin as a deposit. Some lenders say they will potentially look at it but it is very much on a case-by-case basis.
From a borrower’s point of view, they can’t understand why lenders are so fussy but it’s because lenders are worried about cybercrime and how the borrower acquired the money.
Fraud departments are worried so most lenders will give a blanket ‘no’. Otherwise, it will have to be in the applicant’s bank account as traditional money and the lender would want a full on track record of how long the money has been in there and where it came from.
Cryptocurrency is not regulated at the minute which is the whole point of it and if it was, lenders might accept it directly, though I have no say on whether that should happen.
The reason people take out Bitcoin is to increase their money, invest it, or not have it tracked so the government’s Britcoin might not be as appealing. The only reason they might transfer the money back over would be to try and clean it.
So lenders might still look on it unfavourably and want to see the trail of it. When we do get enquiries, most of them don’t go through for that reason. With that in mind, some of the private banks might be more open to taking on these borrowers.
As for advisers learning about it, there have been so many criteria changes in the last year I think most brokers will be focused on that and other immediate changes. If they get a call about cryptocurrency, they might do a quick search to see if there is a home for it but otherwise, they have other things to worry about.