Australia's first Bitcoin-backed home deposit loan

Fintech company Block Earner claims it is launching Australia's first Bitcoin-backed home loan.

But its new product is more accurately a cash loan to finance a home deposit, allowing the borrower to use their Bitcoin as security.

The company says it will cover up to 50% of a property's value with the loan, leaving the homebuyer to finance the rest via the traditional home loan market.

The product is being marketed as an alternative to homebuyers having to convert their Bitcoin holdings to cash to put down a home deposit.

It effectively allows them to retain their cryptocurrency asset and borrow against it.

Loan terms and conditions

Block Earner said its Bitcoin-backed home deposit loan can be taken out as a four-year interest-only loan at an interest rate of 9.50% p.a. (comparison rate* TBA), with a 3% origination fee on top.

The principal can be repaid in either cryptocurrency, cash, or through refinancing at the end of the deposit loan period with borrowers free to exit the loan at any time without penalty.

During the course of the loan, the borrower's Bitcoin would be held by crypto custodian Fireblocks and its security would not be lent on to third parties.

Block Earner said its product can provide a way for homebuyers to not only enter the housing market but for some to also avoid costly lenders mortgage insurance (LMI).

Loans accepting cryptocurrency as security are not new in Australia although it may be this is the first specifically marketed to homebuyers.

Who is the loan aimed at?

The loan product is targeting so-called "digital natives" who're looking to buy property but don't want to cash in their digital assets.

While figures vary, it's estimated more than four million Australians own - or have owned - Bitcoin with more than half of them in the 24-35 age demographic.

Bitcoin is by far the most widely held cryptocurrency and is generally considered the most secure.

However, its reliability as security, or collateral, against a loan is undermined by crypto's reputation as a volatile asset class.

Risks of crypto-backed loans

Just as cryptocurrency lenders find it difficult to obtain finance through commercial banks, their borrowers may also be exposed to risks linked with the fluctuating prices of cryptocurrencies.

Block Earner said in the event of a Bitcoin price fall during the loan period, it reserves the right to call back a portion of the loan to reduce its risk after a 30-day period.

This can be paid via Australian dollars or using the Bitcoin security.

Borrowers can also top up Bitcoin at any time to maintain their loan-to-value ratio (LVR).

If borrowers don't act, Block Earner would have the right to sell enough Bitcoin to bring the LVR back to a "healthy range", but would not sell the full amount.

The company said if there was to be a market correction in the 30-day period and the LVR returned to an accepted range, no action would be taken.

What happens if the Bitcoin price goes up?

If the Bitcoin price rises, the borrower is free to sell down to realise some of the gain or withdraw some of the Bitcoin as the LVR falls below the required level.

Block Earner points out Bitcoin price volatility would only affect the deposit loan while the borrower's home would not be directly at risk.

It may be no coincidence the new Bitcoin-backed loan product comes at a time when the value of the flagship cryptocurrency is near record highs.

Block Earner has previously come under the scrutiny of financial regulator ASIC over a product which allowed consumers to earn yield returns from lending specific crypto assets.

However, the Federal Court found the company's Access product was not a financial product and that Block Earner was not engaged in unlicensed financial services.

ASIC is currently seeking special leave to appeal the decision in the High Court.

Block Earner's home deposit loan product is now at "soft-launch" stage with rollout plans for later this year.

Image by Crypto Crow via Pexels

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