Using Cryptocurrency For A Mortgage: A Must-Read Guide

What Is A Cryptocurrency?

You might have heard of Bitcoin and Ethereum. These are types of digital money that exist online and are becoming a popular way to pay for things because they’re quick and don’t need a bank to go through.

In the UK, if you’re looking at buying a house with cryptocurrency, the first thing to know is you can’t directly use your digital coins to make a payment. 

Instead, you must convert your cryptocurrency into British pounds (or sterling), the money we use in the UK. 

This conversion is necessary because, at present, no UK lenders accept direct cryptocurrency payments for mortgage deposits.

Can I Use Cryptocurrency As a Mortgage Deposit in the UK?

Yes, as long as you convert your cryptocurrency to sterling (British pounds), you can use it as a mortgage deposit.

Converting your cryptocurrency involves selling it on a digital exchange and transferring the money to your bank account. 

This requires careful timing due to cryptocurrency’s volatility and good record-keeping to comply with anti-money laundering laws. 

Lenders will need proof of purchase and sale transactions for your crypto. The acceptance of cryptocurrency for mortgage deposits can vary across the UK. 

Some local lenders may have more experience dealing with digital currencies.

Remember, you can only use these funds as a deposit if you’ve declared these profits to HMRC.  This means you must tell HMRC about any money you’ve made from selling your crypto and possibly pay tax on it.

Consult a mortgage advisor familiar with cryptocurrency to ensure you follow all legal steps and make the most of your digital investments.

Which UK Lenders Are Open to Cryptocurrency Deposits?

Finding a lender in the UK that accepts cryptocurrency as part of a mortgage deposit is getting easier. Several forward-thinking lenders are now open to this idea. 

These include specialist names like Pepper Money, Loughborough Building Society, and Norton Home Loans. 

Even some big banks like Barclays and NatWest are starting to explore these options as the market evolves.

These lenders look at several factors when assessing deposits from cryptocurrency. 

They mainly check how stable your funds are and whether you can cover potential dips in the crypto market. 

They also need to ensure that the money from cryptocurrency sales is legitimate and traceable, addressing concerns about volatility and liquidity.

Eligibility Criteria

When applying for a mortgage using cryptocurrency as a deposit, lenders look at several key factors to determine your eligibility:

• Proof that the cryptocurrency has been converted into British pounds.
• Documentation of the sale transaction from a recognised digital exchange.
• Evidence of the original purchase of cryptocurrency to trace its origins.
• Confirmation that all profits have been declared to HMRC and any necessary taxes have been paid.
• Bank statements showing the funds from the sale entering your bank account.
• A stable credit history and a good credit score demonstrate financial reliability.
• Proof of steady income to ensure you can meet mortgage repayments.
• Compliance with anti-money laundering regulations.

These criteria help lenders assess the risk and ensure the legality and stability of the funds being used for the deposit.

How Much Can I Borrow Using Cryptocurrency?

The amount you can borrow for a mortgage using cryptocurrency does not directly depend on the type of cryptocurrency you hold. 

Instead, it depends on how much British pounds you get after selling your cryptocurrency.

In the UK, lenders typically allow you to borrow 3 to 4.5 times your annual income. They consider your income, existing debts, and your financial history, including your history of converting cryptocurrency to pounds. 

They also look at the size of your deposit and perform affordability checks to make sure you can afford the mortgage repayments. 

So, the actual amount you can borrow depends on these factors and the amount of money you get from selling your cryptocurrency assets.

How To Get A Mortgage with Cryptocurrency?

While you can’t directly use cryptocurrency for a mortgage deposit in the UK, there are ways to leverage your crypto gains to get on the property ladder.

Here’s the process:

1. Consult a mortgage broker who specialises in crypto.  A crypto-savvy mortgage broker is crucial for navigating this process. They can:
   • Advise on the best way to convert your cryptocurrency to GBP while minimising tax implications.
   • Help you find lenders who are open to accepting crypto profits for deposits.
   • Guide you through the stricter application process that lenders may have for crypto-sourced deposits.
2. Convert your cryptocurrency.  You’ll need to sell your crypto holdings and have a clear paper trail showing how you acquired and sold it. This helps lenders ensure the funds aren’t from illegal activities.
3. Find a crypto-friendly lender. Not all lenders accept crypto profits for deposits. Look for a mortgage broker who specialises in these situations. They can help you find lenders open to crypto profits, such as Nationwide or Loughborough Building Society.
4. Be prepared for extra scrutiny. Due to the volatility of cryptocurrency, lenders may be stricter with crypto-sourced deposits. They might require a larger deposit or offer less favourable interest rates.

Overall, using cryptocurrency for a mortgage deposit in the UK is complex and has limitations. Consider these factors before going this route.

Can Cryptocurrency Profits Be Used to Pay Off Your Mortgage?

No, you cannot directly use cryptocurrency profits to make mortgage repayments. 

However, you can convert your cryptocurrency into British pounds and then use that money to pay off your mortgage.

Remember, when you sell your cryptocurrency and make a profit, you might need to pay capital gains tax on that money. 

Once you’ve taken care of any taxes and converted your profits to pounds, you can use it like any other money to help pay your mortgage.

It’s also important to understand that the value of cryptocurrencies can be very volatile. This means the amount of money you get from selling your crypto can change quickly. 

Keep this in mind if you’re planning to rely on converting cryptocurrency to fund your mortgage repayments in the future.

Does Investing in Cryptocurrency Impact My Credit Score in the UK?

No, investing in cryptocurrency does not directly impact your credit score in the UK. 

Credit agencies do not see your cryptocurrency investments, so these do not appear in your credit report.

However, if you borrow money to buy cryptocurrency, like using a credit card, or if investing in crypto affects your ability to manage other debts, this could impact your credit score negatively. 

It’s important to manage your overall finances responsibly, ensuring you meet all other payment commitments on time, which helps maintain a healthy credit score.

What’s Next For Crypto Mortgages in the UK?

As cryptocurrency becomes more popular, we can expect some exciting changes in how it’s used in mortgages. 

The UK market might see new rules that make it easier to use digital money in buying homes. 

We might also see new mortgage products designed to use cryptocurrency more directly.

One big idea is crypto-backed mortgages. These are already starting in the US and could come here too. 

With a crypto-backed mortgage, you would use your digital money as security to borrow money for a house. 

This would let you keep your investment and possibly benefit from its growth while owning your home.

The Bottom Line

As the world of digital money continues to evolve, we expect to find new ways it can help people buy homes. 

While you cannot use digital money directly for a deposit, you can convert it to pounds. This process has several steps and can be a bit complex. 

If you’re thinking about using your cryptocurrency for a house, it’s a good idea to talk to a mortgage advisor. They can help you understand all the details and make the best choices. 

Need a broker? Get in touch with us. We’ll link you with a good mortgage broker experienced in crypto mortgages.