Can You Get a Mortgage with Cryptocurrency?
Cryptocurrency has surged in popularity, transforming the way we think about investing and personal wealth and it’s no surprise that people buying property may have accumulated significant funds of this sort.
With digital currencies like Bitcoin, Ethereum and Solana having generating significant profits for some investors, a question often arises: can these profits be used to secure a mortgage?
The answer is yes, but it is not always straight forward.
At Kerr & Watson, we help clients with unique financial circumstances, including those with cryptocurrency investments. Please note, we are not able to give financial advice based on cryptocurrency itself, only the mortgages.
Introduction to Cryptocurrency and Mortgages
Cryptocurrency is a decentralised form of digital currency that operates independently of traditional banking systems. Unlike fiat currencies like pounds or dollars, cryptocurrencies aren’t governed by central authorities, making them attractive to investors seeking diversification or high returns, coming with high volatility.
However, this lack of regulation and anonymity also presents challenges when it comes to using cryptocurrency in the property market. Mortgage lenders require transparency and traceability for all deposits under anti-money laundering regulations, and cryptocurrencies don’t always provide this clarity.
Find out Your Options
Can Cryptocurrency Be Used as a Mortgage Deposit?
The short answer is yes, but only in specific ways. You cannot use cryptocurrency directly as a deposit, as at the time of writing, no lender currently accepts digital assets as legal tender.
Instead, you must convert your cryptocurrency into pounds sterling (GBP) and provide documentation to prove the source of these funds.
Here’s how it works:
Convert Crypto Profits
Sell your cryptocurrency holdings through a reputable exchange and transfer the proceeds to a UK bank account.
Establish a Paper Trail
Keep detailed records of all transactions, including how the cryptocurrency was acquired, sold, and transferred. Lenders have an obligation to understand how deposit funds were accumulated, for anti-money laundering purposes so this is very important.
Pay Taxes on Profits
Declare your gains to HMRC and ensure any applicable taxes, such as capital gains tax or income taxes, have been paid. You should speak to a qualified tax adviser for help here.
Meeting these criteria is essential for lenders to consider your application. Without clear documentation, your deposit may be rejected.
Challenges You Might Face
Using cryptocurrency for a mortgage deposit isn’t without its obstacles. Here are some of the key challenges you may encounter:
Limited Lender Options
Most mainstream lenders are still cautious about cryptocurrency due to its unregulated nature. While a few lenders are open to crypto-based deposits, they often have stricter requirements and may even higher interest rates if a specialist lender is required.
Volatility of Cryptocurrencies
Cryptocurrency values can fluctuate dramatically. For instance, Bitcoin’s value has been known to swing by thousands of pounds in a single day. This volatility can make lenders hesitant, as it may impact your financial stability and if funds have not yet been drawn, your deposit funds may significantly decrease by the time of completion.
Anti-Money Laundering Compliance
Lenders are legally obligated to verify the source of all deposit funds. Cryptocurrencies, due to their anonymous nature, have been associated with money laundering. You’ll need to provide detailed evidence of the legitimacy of your funds, showing how they were bought in the first place and where this money originated from.
Additional Documentation
You’ll be required to present extensive paperwork, potentially including transaction histories, bank statements, and proof of tax compliance. Gathering these documents.
How Cryptocurrency Impacts Mortgage Applications
Can Cryptocurrency Be Counted as Income?
Currently, many lenders do not accept cryptocurrency profits as a source of income for affordability assessments. This is due to the volatility and unpredictability of the market. However, if you have a stable income from other sources, such as employment or self-employment, you may still qualify for a mortgage while using your crypto profits as a deposit. Some lenders may consider the profits solely if there is a long track record and string reason why this is due to continue.
Can You Use Cryptocurrency to Repay a Mortgage?
At present, no lender allows mortgage payments to be made directly with cryptocurrency. However, you can use converted crypto profits to make repayments, provided they are transferred into a UK bank account, with checks potentially being required for money anti-laundering purposes.
Steps to Secure a Mortgage with Cryptocurrency
If you’re planning to use cryptocurrency for a mortgage, the following steps will be helpful to you.
1. Convert Your Cryptocurrency into GBP
Use a reputable exchange to sell your cryptocurrency holdings and transfer the funds into a UK bank account. Ensure you retain all transaction records, including timestamps and wallet addresses. You should take professional advice before doing this including tax advice and speaking with a mortgage adviser to make sure you are meeting lender criteria in other aspects as you are not guaranteed to get a mortgage offer.
2. Document the Source of Your Funds
Gather evidence of how you acquired your cryptocurrency, such as purchase receipts or mining records. If your crypto was gifted, additional documentation may be required, such as the giftors previous bank statements and a letter to confirm they will have no financial interest in the property.
3. Declare Your Profits to HMRC
File any required tax declarations with HMRC and pay any applicable taxes. Lenders will often request proof of tax compliance. You should speak with a tax adviser to understand the implications of selling the currency to finance your property purchase.
4. Consult a Qualified Mortgage Broker
Work with an experienced mortgage broker, like Kerr & Watson, who understands unique situations, with access to the whole market. We’ll take the time to understand your situation to seek lenders who are open to crypto deposits and the remainder of your individual situation.
5. Apply for an Agreement in Principle (AIP) and Full Mortgage Application
Your mortgage broker will be able to apply for an AIP. This will provide an estimate of how much you can borrow, helping you set a realistic budget for your property search.
With your documentation in place, your broker will submit your application. Your lender will review your funds, conduct anti-money laundering checks, and assess your affordability and the property before fully agreeing a mortgage. You can get an idea of affordability using our affordability calcultors.
Conclusion
Using cryptocurrency for a mortgage is no longer impossible with all lenders, but it does come with unique challenges.
By converting your crypto assets into GBP, maintaining a clear paper trail for anti-money laundering purposes, and working with a specialist broker like Kerr & Watson, you can increase your chances of securing a mortgage.
If you’re ready to explore your options, contact Kerr & Watson today.
