Crypto Investments: Mortgage Impact And Your Home Loan

Investing in cryptocurrency can affect your mortgage application. Due to the volatility of the cryptocurrency market, lenders view crypto investments as risky. Lenders want to see consistency in the amount you will have available to contribute to mortgage repayments, and crypto's fluctuating value can be seen as inconsistent. However, as long as you are consistent with your investments and still have regular savings, most lenders will not be concerned.

Lenders view crypto as a risky investment

The cryptocurrency market is known for its volatility, with huge price swings that can occur in a short space of time. This makes it a risky investment, as the value of an investment can fluctuate rapidly. Lenders are concerned that the value of a borrower's cryptocurrency could drop, impacting their ability to repay a loan.

Additionally, the anonymous and unregulated nature of cryptocurrencies makes them attractive for money laundering and other financial crimes. Lenders need to be able to verify the source of funds for mortgage deposits to comply with anti-money laundering regulations, and this can be challenging with cryptocurrencies. The lack of clear regulatory frameworks and oversight for crypto also means that lenders may have less protection if things go wrong.

The risks associated with crypto lending include the possibility of losing funds if the lending platform goes bankrupt, security breaches and cybercrime, and the impact of price volatility on the value of collateral.

Despite these risks, some lenders do accept cryptocurrency profits as a deposit for a mortgage, provided the borrower can prove the source of funds and that any necessary taxes have been paid.

Crypto profits can be used as a mortgage deposit

Additionally, due to the anonymous and unregulated nature of cryptocurrencies, many lenders are hesitant to accept deposits from this source as they need to comply with anti-money laundering regulations. As a result, finding a lender that will accept your crypto profits as a deposit may be challenging. A small number of lenders in the UK are known to consider applications from individuals using cryptocurrency as a source of income for their deposit, including Pepper Money, Loughborough Building Society, Generation Home, Norton Home Loans, Bluestone Mortgages, Barclays, Nationwide, and NatWest.

To increase your chances of success, it is highly recommended to work with a mortgage broker experienced in cryptocurrency. They will have relationships with lenders who accept crypto deposits and can guide you through the process. You will also need to provide a paper trail showing how you acquired and sold your crypto holdings, including bank statements, cryptocurrency platform statements, and tax records.

It is important to note that you must declare your crypto profits to the appropriate tax authorities and pay any necessary taxes. Lenders may request evidence of tax compliance, and failure to do so could result in your application being rejected and further legal consequences.

Crypto income is not considered in affordability assessments

Additionally, the volatility of the cryptocurrency market means that lenders see crypto investments as risky. They are concerned about the potential for money laundering and the instability of the market. As a result, they consider crypto income to be a high-risk source of income. Lenders want to see consistency in the amount you will have available to contribute to mortgage repayments, and crypto income does not provide that stability.

To give yourself the best chance of being accepted for a mortgage, it is recommended to work with a whole-of-market mortgage broker who can advise you on which lenders are most likely to accept your cryptocurrency profits and what they are looking for in terms of paperwork and proof of income. This will help you avoid getting rejected, which could negatively impact your credit score and make it harder to get a mortgage in the future.

Crypto is not accepted as a direct mortgage payment

While cryptocurrencies like Bitcoin are becoming more popular, they are not yet widely accepted as a form of payment for mortgages. Lenders have varying views on crypto assets, with some considering them close to gambling due to their volatility and others seeing them as speculative investments. As a result, most lenders will not accept direct payments in cryptocurrency for mortgages.

There are a few things to keep in mind if you're considering using cryptocurrency to pay your mortgage:

• Converting crypto to fiat currency: You will need to convert your cryptocurrency into a traditional currency, such as pound sterling, before you can use it for mortgage payments. This is because lenders only accept payments in these currencies.
• Money laundering concerns: Mortgage lenders need to verify that your funds have been obtained legally to comply with anti-money laundering regulations. The anonymous nature of cryptocurrencies makes this difficult, and the unregulated market is often associated with money laundering.
• Tax considerations: Any profits made from selling or trading cryptocurrency are typically subject to taxes, such as income tax and capital gains tax. Failing to declare and pay the correct amount of tax could lead to legal issues and negatively impact your mortgage application.
• Volatility and risk: The value of cryptocurrencies can fluctuate rapidly, and lenders consider them risky investments. This volatility may impact your ability to make consistent mortgage repayments and could be a reason why lenders are hesitant to accept crypto as a direct payment.

In summary, while it is not possible to use cryptocurrency directly for mortgage payments, you can use the proceeds from selling your crypto assets. However, you must ensure you comply with tax regulations and be prepared for strict checks from lenders due to money laundering concerns.

Crypto investors may face higher lender scrutiny

Due to the volatility of the cryptocurrency market, lenders may view investments in cryptocurrency as risky. Lenders have varying views on the asset class, with some considering it close to gambling, while others see it as a speculative investment. As such, crypto investors may face higher scrutiny from lenders when applying for a mortgage.

Lender concerns

Lenders want to see consistency in the amount available for contributing to mortgage repayments. Sporadic investments chasing short-term gains may be considered impulsive behaviour by lenders, potentially impacting your ability to make mortgage repayments.

Additionally, under anti-money laundering regulations, lenders need to verify the source of your deposit funds to ensure they were obtained legally. The anonymous nature of cryptocurrencies makes this challenging, and crypto has become a popular route for money launderers. As a result, many lenders are reluctant to accept applications involving cryptocurrency.

How to improve your chances with lenders

To improve your chances with lenders, it is recommended to demonstrate consistency with your crypto investments and maintain regular savings. Monthly purchases of cryptocurrency may even be counted towards your "repayment capacity".

If you are only an occasional crypto investor, use your disposable income, and avoid dipping into your regular monthly savings. It may also be advisable to avoid crypto purchases in the months leading up to your mortgage application and instead direct those funds towards your savings.

Furthermore, consider working with a mortgage broker experienced in cryptocurrency. They can guide you through the process, introduce you to crypto-friendly lenders, and help you gather the necessary paperwork.

Frequently asked questions