Using cryptocurrency to invest in the property market feels very much like the future is here. There’s a lot of information, and for the most part, we don’t really know exactly where it’s going. The industry is still fresh and exciting, a little like the wild west of currency.
Before delving into the topic head-on, we’ll provide a helpful introduction to cryptocurrency itself and how it works. If you’re already familiar with the basic concepts, we advise that you move ahead to the main part of the article. You should also note this is not financial advice. The best course of action before investing your own money is to contact a professional financial advisor.
What is cryptocurrency?
Just like the cash in your pocket, crypto is a digital currency that can be used to buy goods and services. The same as you would with your money at the local supermarket, only cryptocurrency exists somewhere in the digital universe. You can even trade cryptocurrency for profit.
Unlike traditional currency, however, crypto utilises strong cryptography for security and is decentralised. This means that it isn’t regulated by central banks and doesn’t use a traditional bank for wealth transfers. You also can’t withdraw it into physical cash from an ATM or bank branch. However, you can trade crypto in return for traditional currencies.
So, why would you use it?
After all, what’s wrong with the cash in your wallet? Well, fervent supporters of crypto could list you a million reasons why it might be better. Generally, it boils down to the fact that cryptocurrencies operate on a decentralised system; they are more private and secure and offer cheaper and quicker transactions.
The vast majority of people that hold crypto-assets do so for profit. Cryptocurrencies are famously volatile! This means an experienced investor could potentially take advantage of the market’s fluctuating nature to see some serious returns on investment. But given the high volatility, it’s also an easy place to lose a lot of money.
What about taxes?
Well, as we all know, taxes are one of life’s certainties, and it’s no different for cryptocurrencies. Some countries do provide breaks, such as Portugal and Germany. In these countries, crypto trading and transactions are tax-free. But in the UK, any gains made on crypto-assets will be taxed. So ensure that you’re complying with Government regulations.
Using cryptocurrency to invest in property
Now that you have a better understanding of cryptocurrency, we can delve into how it can be beneficial in the property market. People often seek advice on whether to invest their money into crypto or property separately, but the two can be used effectively together.
If you find the right buyer or seller, you could, in theory, conduct an entire property transaction with cryptocurrencies, such as Bitcoin or Ethereum. You wouldn’t even have to use physical contracts since the whole process would be secured through blockchain technology. Paperwork is one of the most significant downsides to investing in property. Eliminating that step could save you time and money.
What are the benefits?
There’s an array of advantages to using cryptocurrency in the property market. For first time buyers, for example, investing in crypto can provide a quicker route to a deposit than the traditional way of saving money each month into an ISA or a low-risk fund.
Perhaps the most important advantage is the ease of use. If you’re a property investor or someone that’s previously bought a house, you’ll know that the market has to deal with never-ending bureaucracy. It can be a long process of contracts and chains, and it always feels like a waiting game. With crypto, on the other hand, the process of buying and selling property can be much quicker. Even selling abroad, you won’t have to worry about waiting; the transaction can be completed in a matter of seconds.
Let’s also not forget that paying a deposit or buying a property outright with crypto can be cheaper, as there are no processing fees, unlike going through a traditional bank.
Is it safe to invest in property with cryptocurrencies?
It’s natural if you’re inexperienced in crypto and wonder whether it’s all just a fad or even safe to use. However, the fact is that cryptocurrencies are incredibly safe for property investors most of the time. It’s near impossible to clone crypto, making it unlikely that someone will commit fraud. The transactions are also conducted through blockchain, allowing both parties to see the origin of the funds and when contracts start and end.
There are, of course, certain things you need to consider before deciding to go ahead and use crypto to buy property. We go into detail about some of the disadvantages below.
Are there downsides?
Unfortunately, given the extreme volatility of the cryptocurrency world, many lenders and conveyancers in the UK aren’t interested in accepting the currency as a means to buy property. It’s mainly due to the fact that crypto is, for the most part, unregulated in the UK, with the Financial Conduct Authority (FCA) only overseeing it for money laundering purposes. Therefore, without thorough research, it can be easy to fall prey to a scam.
If a mortgage lender does allow payment by cryptocurrency, they will investigate how you obtained the amount and how it grew over time. This is to avoid people using cryptocurrencies that falsely jump up in value overnight, such as the Squid Game rug pull scam. Prices jumped from $0.01 to over $2,800 in under a week but have since plummeted by 99.9%.
The good news is that many major lenders in the UK do allow you to use funds from cryptocurrency. However you must first exchange them into fiat currency and hold the funds in a UK bank account. This can be a great way to use gains made on crypto investments to put you on the property ladder or invest in a development.
HMRC cryptocurrency: Do the same tax laws apply?
As we touched on before, taxes still apply to cryptocurrency gains in the UK. HMRC cryptocurrency has plenty of information on the regulations and should be thoroughly checked by anyone thinking of using crypto to buy property.
To give you an insight, here is an overview of what you’ll be paying:
Stamp Duty: As with buying a property with cash, you’ll be liable to pay stamp duty. This is a tax levied on all property purchases in the UK, and the amount you pay depends on the value of the property and what type of buyer you are.
For crypto buyers, however, there is an extra caveat to consider. The amount of stamp duty to be paid will be based on the currency’s value in sterling at the time of completing the property purchase. This means that any gap between exchange and completion will leave you in the dark as to how much stamp duty you’re paying.
Note that you would have to pay stamp duty to HMRC in cash, as they don’t currently accept cryptocurrencies. Although there’s an excellent level of privacy with crypto, HMRC can gain access to data that shows who holds crypto-assets in the UK through placing requests to UK digital currency exchange bases.
How does HMRC view buying property through blockchain?
For the most part, HMRC doesn’t share an opinion on using blockchain and crypto to buy property. As long as the right amount of taxes are paid, you should have no problem. The department has even notified people with crypto-assets that they need to ensure that they’re paying the right amount of tax.
On the other hand, HMLR (Her Majesty’s Land Registry), the department of the UK Government responsible for property and land ownership, has openly discussed the benefits of using blockchain in property transactions. To this end, HMLR created a research project under the name of Digital Street to oversee all blockchain developments.
The department states that it wants to be the market leader for registry speed. So, it has developed a prototype that automatically registers a digital property transfer on the Land Registry. This type of innovation can be the starting point of a blockchain revolution. One that will help streamline the property buying process in the UK and speed up procedures for everyone.
Can landlords accept rent in cryptocurrency?
It’s perfectly legal to use cryptocurrency to pay rent, if you can find an estate agent that allows it. Until recently, many companies were allowing it as a marketing tool, but the level of uptake wasn’t very high.
A high profile case of this is the UK fintech Revolut. Known as a market disruptor, the company recently decided to use cryptocurrency to pay for its office space in Dallas, Texas. The rent is paid to the popular company WeWork who agreed to receive payment in crypto.
There are, of course, certain things you should consider before deciding to pay for rent with digital currency. The market volatility could leave you exposed if there’s a sudden market swing before your rent is due. Most landlords might also stipulate clauses in the contract that could lead to extra fees. So, ensure that you check contracts thoroughly before agreeing to anything.
Can blockchain technology help change the property market?
Blockchain technology has already made waves in various sectors and industries. It’s only natural that it will start making its way into the property market. The question is when rather than if. As with any market-disrupting innovation, blockchain use will take time. Market players need to adjust to new processes and analyse how blockchain might affect the industry. There could be further regulations to be put in place, as well as job cuts.
Property transactions are still done the old fashioned way, face-to-face with lots of handshaking and smiling. The issue is that this creates a lot of bureaucracy and long waiting periods due to the number of parties involved. Blockchain would first eliminate the need for many intermediaries, such as banks, brokers, and solicitors. The cost of investing in property would automatically drop, not to mention the speed of transactions.
There are also various start-ups developing tools to make transactions more manageable. This means there’s market competition, and the standard of tools will improve over time. The blockchain start-up Coadjuste, for example, recently launched a distributed ledger technology (DLT) network that enables the sharing of data on property sales.
Will the use of cryptocurrency in property become more popular?
45% of new investors between 18 and 29 years of age put their money in cryptocurrencies in June 2021, highlighting a genuine interest from young people in the segment. However, it’s likely that the use of digital currencies to buy and invest in property will depend on how common it becomes in everyday life.
When a major shift is likely to occur would be anyone’s guess. So, for the foreseeable future, cash will still remain the primary way of buying and selling property in the UK. For the widespread acceptance of crypto, lenders would first need to see the digital currency market settle and become more predictable. The currency volatility would make it impossible to correctly work-out interest rates and borrowing amounts.
The UK Government would also likely need to implement more regulations and provide additional information on how the segment works. Especially for those with little knowledge of crypto, such as tax with HMRC cryptocurrency and how it would work with rental income and stamp duty.
One positive is the way blockchain technology is revolutionising industries and sectors. This change could further support the notion of the property market undergoing a digital transformation in the near future. As for the tech-savvy and well-researched investors out there, being an early user of crypto in the property market will provide a fantastic opportunity. Not only to improve the speed of transactions, but get more privacy, and reduce bureaucracy.
As with any financial decision, it’s important to get advice from a professional advisor before making a decision. It can save you money and headaches in the long run.
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