UK mortgage lenders refuse to accept deposits because of money laundering fears
Bitcoin investors trying to channel their new fortunes into UK property are being turned away by mortgage lenders and brokers who fear breaching anti money-laundering regulations. The price of bitcoin, a virtual currency, has fallen back in recent days but has still risen nearly 1,500 per cent in the past 12 months on the Coinbase exchange.
Some younger investors have tried to take advantage of the sudden windfall to get on to the housing ladder, but have found that even after converting their profits to sterling, lenders were not satisfied that they could trace the source of the money. One public sector worker built up a deposit of £40,000 after investing in bitcoin, said Mark Stallard, a broker and principal at House and Holiday Home Mortgages.
But he said he had been unable to arrange a loan because it was hard to prove where the funds had arrived from and to link them to his client. “The first mortgage lender I rang asked me what a cryptocurrency was,” Mr Stallard said. “I rang two other lenders and they said they would not touch it. “When I mentioned where the money had come from there was massive reluctance to help or understand the problem.
I do not believe the mortgage providers in general are ready for this issue and research tells me that a lot more people will be knocking on our doors with funds made or raised in this fashion.” Cryptocurrencies, such as bitcoin, are not regulated by central banks but are held digitally via electronic identities that allow the owners to remain anonymous.
Several building societies said they would not accept a deposit derived from a cryptocurrency, while banks including Santander, Nationwide and Aldermore said they had no formal policies on the matter. The Building Societies Association said: “There is currently no regulation of these electronic currencies, which puts them into the highest risk category in relation to money laundering. In addition, it is well known that such currencies are popular with criminals, who use them to launder the proceeds of crime.”
Nothing in UK mortgage regulation prevents borrowers from using sterling proceeds from cryptocurrency transactions as a deposit. Many lenders including Coventry Building Society, Skipton and the Yorkshire Building Society said they would accept deposits derived from bitcoin sales. But in order to accept cryptocurrency-derived deposits, banks said they would require extensive audit trails and proof of identification that many bitcoin investors do not possess.
Many early adopters do not have extensive proof of purchase and sale and the digital ledger means identifying users is difficult. Max Wilde, a professional who has made a six-figure sum investing in bitcoin, said he found it “ludicrous” that “the colour of my money might not be accepted”. “Cryptocurrency has become the cash grab of our generation. There are a whole group of over 50s who don’t understand what cryptocurrency is and went from laughing at it to being worried by it and assume that in some way it’s dodgy or illegitimate.”
Banks and mortgage brokers said there was a lack of guidance about how to approach cryptocurrencies, so they were erring on the side of caution for fear of falling foul of the regulator. Ray Boulger of mortgage broker John Charcol said: “Lenders are so frightened about being hauled over the coals by the Financial Conduct Authority for not complying with anti-money laundering rules that they go beyond what in many cases you and I might consider to be reasonable.”
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, a trade body, said there was no official regulatory stance. “The rules are made by governments and lenders and regulators and the first real guidance we’ve had was the speech from [FCA head] Andrew Bailey saying that he didn’t see how cryptocurrency was a real currency.”
The FCA said: “Our existing rules and guidance related to customer due diligence checks under the money laundering regulations require financial firms to take an approach tailored to the risks they face. We do not currently plan to issue guidance to mortgage brokers and lenders about the specific risks arising from sources of funds being used in housing transactions.”
One solution for a borrower might be to leave a period of time between cashing out of a cryptocurrency and applying for a mortgage. Mr Boulger said it would be easier for someone to use their bitcoin-derived money for a deposit if they waited at least six months before applying for the mortgage. “In practice, if you use money from your bank account for a deposit, lenders will typically ask to see three or six months bank account statements. So if you’ve had money in your account since before then, the chances are it won’t be a problem,” he said.
Existing borrowers who want to use their bitcoin profits to pay down mortgage debts are free to do so. Daniel Hegarty, founder of online mortgage broker Habito, said a customer recently cancelled his remortgage application before it was completed, deciding instead to pay off his whole mortgage with his money from bitcoin investments. “Given the swift mainstreaming of crypto and crypto-investing, I’d expect the situation to change but it will undoubtedly take longer than is reasonable,” he said.