Crypto Finance

How Does Crypto Lending Work?

Crypto real estate finance is a short-term form of borrowing. You can borrow for a few weeks or months, up to a maximum of around two years. You use the loan capital to buy real estate.

Enness’ specialist brokers help cryptocurrency investors secure competitive, high-value crypto real estate finance using mainstream cryptocurrencies as collateral. Enness can broker finance for borrowers worldwide. The team brokers finance for million-pound-plus residential, buy-to-let, investment or commercial property purchases in the UK or abroad, backed by cryptocurrencies.


The Current Crypto Landscape

Despite intermittent volatility, rising cryptocurrency valuations have seen many investors projected into ultra- and high-net-worth territory. While this may be the case, if you are in this scenario, you may find that despite having very significant wealth invested in mainstream cryptocurrencies, using digital assets as security for a loan remains incredibly challenging. The reality is that if you want to buy real estate using cryptocurrencies as security for a loan, this remains a niche part of the market that most lenders do not serve. 

You may also have significant wealth tied up in your cryptocurrency investments and other assets, but comparatively little liquidity and income. Enness’ brokers see this relatively often. Here, borrowing will be imperative, and is sometimes the only way to be able to purchase high-value property via crypto real estate finance.

Selling cryptocurrencies to create liquidity to buy real estate is an option, but it is unlikely to be especially advantageous. The gains on your cryptocurrency holdings are likely to be very significant, and disposing of them – even in part – can trigger some substantial tax liabilities. You will also miss out on any increasing valuation of your cryptocurrency. While cryptocurrency valuations can be unstable at times, they are less volatile than they once were, and holding them for as long as possible is likely to be your preferred approach to holding these investments. 

Unfortunately, however, if you want a crypto-backed loan, it’s not just as simple as going to the bank and taking out a loan against your cryptocurrency holdings. Banks and mainstream lenders were initially wary of cryptocurrencies. While many are now actively trying to move into the space in various ways, cryptocurrency lending remains a niche lending product. This is especially true if you want a high-value loan secured against cryptocurrencies to buy property.

How Does Crypto Finance For Property Purchases Work?

Lenders will usually offer crypto real estate finance as a percentage of the value of your coins. You will generally need to have a sizeable crypto investment portfolio to access this type of finance for a real estate purchase: crypto investments valued at a minimum of £100,000 is usual, but some lenders will require more. 

Enness can broker crypto real estate loans for you very quickly, even if you are looking to borrow a significant amount. Because the underwriting process is focused on the cryptocurrencies you want to put forward as collateral, the property you wish to buy and your exit, underwriting can usually move much faster than in other types of lending.

In theory, borrowing against any cryptocurrency with a sizeable market cap and that can be easily liquidated is possible. However, the most common types of crypto-backed loans to create liquidity for property purchases are secured against Bitcoin, Ethereum, Litecoin and Cardano. 

The value of your cryptocurrencies will influence how much you can borrow, as your lender will need to factor in any fluctuations in the value of your cryptocurrency. As a result, borrowing a maximum of 50% of the value of your cryptocurrency is usual. 

If the value of your coins drops below a particular value during the loan term (this is defined with your lender in advance), you may need to provide additional cryptocurrency as collateral. If you cannot or do not wish to do this, your lender may sell a portion of the existing assets to reduce the loan. If you were to miss repayments or default on the loan, the lender would also sell your cryptocurrencies.  

Advantages of Crypto Real Estate Finance

Crypto loans for real estate are generally used in two ways: to use digital assets to create liquidity to buy property (residential, a holiday home, investment property) or as a mechanism to purchase property to diversify a portfolio. The latter is common if you have a very significant portion of your overall wealth is tied up in digital assets and you wish to spread risk and diversify investments.

Using crypto real estate loans for property purchases is advantageous because you can use cryptocurrency investments as security for a loan, creating liquidity to buy real estate without selling your digital assets. Given mainstream cryptocurrency valuations are expected to rise in the long-term, holding cryptocurrencies for as long as possible is very likely to be your preferred approach. Selling these assets to create immediate liquidity for a property purchase can see you miss out on the future upside of any further appreciation. 

Using cryptocurrencies as collateral for a loan is often advantageous from a fiscal perspective. Broadly speaking, it is often more beneficial to raise debt to buy property than buying in cash, which can increase your taxable base or the net worth on which your tax is calculated. Here, the best approach will depend on your situation and goals, but it is always worth seeking expert advice to understand how and if debt is more advantageous to you than buying real estate outright. 

Selling cryptocurrencies to create liquidity to buy property can also trigger significant fiscal liabilities. This is likely to be especially true if you were an early investor of cryptocurrencies. Initial investments required (comparatively) little investment and have grown significantly over the past years. Selling your digital currencies to create liquidity can be a double-edged sword, however. While you generate the capital you need in the short term, in doing so, you can then be liable to pay things like significant Capital Gains Tax. Depending on your overall liquidity and cash flow, this may be problematic, especially as many cryptocurrency investors are asset rich but have comparatively little income. If this is the case, pulling together the capital needed to settle a tax bill can be very challenging and something you need more time to plan for. Ultimately, many of Enness' clients find that borrowing via crypto real estate finance is more efficient and easier to manage than buying a property in cash.


Disadvantages of Crypto Real Estate Finance

Cryptocurrency-backed loans remain a relatively niche area of the lending market, and not many lenders offer this type of loan. At a surface level, it can seem like it’s easier to get great deals by approaching lenders yourself, but it can be tricky to negotiate the best rates in this way. In parts of the market where there are many lenders (the mainstream mortgage market in the UK or US, for example), borrowers often find the competition creates a favourable environment for negotiations. Lenders need to be operating in specific parameters regarding rates to stay competitive against other contenders, which is helpful for borrowers navigating the market themselves. 

However, the absence of lots of lenders in the cryptocurrency finance space can mean that operating alone, you may find it is more challenging to get the best deal. Lenders (while they want to do business) are not always open to negotiation with individuals, and simply going elsewhere in search of an alternative lender if you don't like what you are offered is easier said than done. As there is less competition between lenders, each loan will be priced to order, so knowing how to present your case to lenders is critical – this is often the difference between a great loan and a workable but not ideal finance package.

Cryptocurrencies continue to fluctuate in price quite significantly, and this can be a drawback if you are looking to borrow against these digital assets. While valuations remain far more stable than they were some years ago, big drops continue to come with some regularity. There is also relatively little understanding of how cryptocurrency valuations adapt to broader economic uncertainty in the markets, so there are still a lot of unknowns that have to be considered and that lenders will want to work around. As a result, rates tend to be higher than for other types of lending.

If you have very significant cryptocurrency investments and want to borrow to buy a property that is low-priced in comparison, this will be relatively easy to do as the low loan-to-value ratio (LTV) means you can easily absorb any crypto fluctuations. However, lenders will assess you very carefully if you are looking for a high-value crypto loan to buy property of any kind. The takeaway here is that it is not necessarily that borrowing is difficult, but that you will need to be aware of what lenders will offer you in terms of LTV. 50% LTV is very typical in the space – crypto finance in the 70%+ territory is unheard of, for example, and as a borrower, you should be aware of this. However, having access to all the players in the market through a broker will help maximise what you can borrow and minimise what you will pay.

Traditional Lender Attitudes To Crypto

Mainstream lenders have traditionally been wary of cryptocurrencies, especially as they rose to prominence and were not as widely adopted as they are today. However, in recent years many lenders have seen that there are incredible opportunities in crypto, and there is massive demand from both stakeholders and borrowers to move into the space. As more niche lenders and service providers have started to work with cryptocurrencies, digital assets have effectively been eased into the mainstream financial services space. In turn, regulators have relaxed their approach (buoyed by institutions keen to capture opportunities around cryptocurrencies), and larger institutions are looking to start operating in the space, either through lending or in other ways. 

While it is safe to expect that more traditional lenders will offer cryptocurrency finance in the future, roadblocks remain in the current business and regulatory environment. Mainstream lenders across the board (but banks in particular) are set up to underwrite loans against traditional asset classes. Managing risk and regulations is also challenging for banks with borrowers with digital assets, given the relative novelty of cryptocurrencies. Traceability and source of funds are particularly difficult points for banks, which have more rigid rules surrounding compliance and AML.

This is not to say that banks have no desire to offer this type of lending or do not appreciate the calibre of cryptocurrency investors looking to borrow. Instead, the current status quo is simply a reflection of the internal setup processes banks rely on that are not yet designed to encompass digital asset classes. It is this, and the sometimes volatile nature of cryptocurrencies that has meant that banks (which are some of the most naturally risk-averse lenders) are generally unable to offer crypto real estate lending. As a result, niche lenders are currently the backbone of this market.

Enness’ Network Of Crypto Real Estate Finance Lenders

Enness has close partnerships with all the lenders that offer crypto loans for real estate purchases, and the team can broker finance wherever you are based and wherever you want to buy property. 

Crypto-backed real estate loans remain a relatively niche offering. While you can approach some lenders directly, others do not publicise their services or actively prefer introductions from brokers like Enness. This is especially true for high-value loans of £1 million or more. Enness works with all the lenders in the space and will source and negotiate the best crypto-backed finance for you.

Practically, this means your broker will look at which coins you have, their value, your other income or assets, your exit and the type of property you would like to buy. Then, your broker will approach the lenders that can offer the best package for you. Enness will also present your application to the lender in the best possible light, explaining the merits of your case and maximising what you will be able to borrow and getting the most competitive rates available. 

Am I Eligible For a Crypto Loan To Buy Real Estate?

Enness brokers high-value crypto real estate loans purchases – anything over £100,000 (or the equivalent in another currency). Enness’ team of crypto brokers are experts in sourcing and negotiating deals in the million-pound-plus space. 

In theory, anyone with a significant holding of mainstream cryptocurrencies is eligible for a crypto-backed loan to buy real estate. Still, as is usual with any type of lending, there are always caveats. For high-value loans, lenders will be looking very carefully at LTV. 50% LTV is standard in this space (less than other types of loans backed by different types of security on the basis of the fluctuations in value and past volatility). This means that the value of your investments will need to be at least double what you want to borrow and, in some cases, will need to be more than double what you want to borrow if the loan carries more risk for any reason.

Lenders will also be looking carefully at your wider wealth and income particularly carefully with this type of loan, given it will be considered as higher risk than other types of finance. No matter how significant your wealth is (and whether it is exclusively linked to cryptocurrency or not), the loan must be affordable, and you will need to be able to comfortably support interest repayments. If you cannot meet these criteria, you will not be eligible for a loan, no matter the overall value of your cryptocurrency holdings.

How Enness Works With Intermediaries

If you are a private client advisor or work with investors with significant cryptocurrency holdings, you may also be receiving more requests about crypto loans to buy real estate from your clients. Managing these requirements can be challenging, especially if sourcing or negotiating finance is not your area of expertise. It is particularly difficult to broker finance when you need to source offers for high-value finance in a niche part of the market like cryptocurrency finance. Operating alone, it is hard to ensure that your client gets the best deal possible, especially without relationships with lenders that provide crypto-backed property finance.

Enness is a leading broker of high-value crypto real estate crypto loans for high-net-worth individuals and advisers based anywhere in the world. The team has experience brokering loans of hundreds of thousands of pounds up to multi-million-pound deals. Working closely alongside you, Enness will help you deliver crypto-backed loan offers to your clients, partnering with you however you prefer. Enness crypto brokers can either work alongside you and your client or work exclusively with you, delivering solutions that you pass on without Enness being involved in client relations directly. 

Wherever your client wants to buy a property, and however much they want to borrow, Enness will be able to support you and your crypto real estate finance needs. You will find Enness’ team responsive, proactive and always on your side, working quickly towards the solution you and your client need.

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Get In Touch

Enness has a track record assisting high-net-worth individuals to secure high-value finance to purchase property using cryptocurrencies as security.  Contact Enness to have a no-obligation chat about your plans for purchasing property and to learn more about how Enness expertise and how the team can help you.

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