With property prices soaring ever further out of reach, many people are considering turning to their Bitcoin and crypto profits to fund a house.
But despite the fact that Bitcoin has been around since 2009, many banks and mortgage lenders are still wary of crypto, with some refusing to have anything to with it.
It seems that crypto friendly mortgages don’t really exist right now, with banks reluctant to touch digital currency, not just for property but for pretty much everything else as well.
Even if you cash in your cryptocurrency and try to use the proceeds towards a mortgage, you can still run into difficulties and face extra hurdles if this is declared as the source of your funds.
Because Bitcoin has long been associated with nefarious activities, such as money laundering, mortgage lenders are extremely cautious whenever there’s a hint that digital currencies are in the mix.
Here we’ll examine whether you can use crypto to buy a house and whether there are any crypto friendly mortgage lenders in the UK.
Related link: What are the top crypto friendly banks in the UK?
Can I use crypto to buy a house?
At present, you can’t use your Bitcoin or other cryptocurrency directly to buy a house in the UK because mortgage lenders will not accept it.
That’s not to say you can’t transact directly with a vendor to buy a property using crypto, but for most people this won’t be possible financially.
When it comes to mortgage lenders, you can use profits from the sale of cryptocurrencies as a deposit, but you’ll find that mortgage lenders will carefully scrutinize the source of these funds.
What this means is that you’ll need to provide a paper trail documenting the history of the crypto, which will likely involve a professional auditor, so the lender can comply with Anti-Money Laundering (AML) regulations.
The audit will include:
- Details about the original purchase of the crypto
- The source of the funds involved
- Where the crypto has been traded, exchanges etc
- Where the assets were sold and to whom
If you’re unable to provide a fully audited trail for your crypto you may find that your mortgage lender will reject your application.
In some extreme cases, applications will be passed to the police for investigation if a financial crime is suspected.
Can I declare my crypto profits as income on a mortgage application?
If you’re lucky enough to make money with crypto you may be disappointed to discover that you can’t add it your income when submitting a mortgage application.
The volatile nature of crypto means your crypto earnings will be unpredictable making it difficult for mortgage lenders to reliably assess its value.
This also applies to self-employed people who often find it harder to secure mortgages because their earnings can vary from month to month.
When it comes to using profits from crypto for a mortgage deposit, you’ll again need to provide a verifiable audit trail documenting the source of the income.
Can I pay my mortgage with crypto?
Again, you can’t directly pay you mortgage with cryptocurrency, but you can potentially use your Bitcoin profits to meet your monthly repayments.
This means you’ll have to sell your coins first and use fiat currency, ie pounds sterling if you’re in the UK, to pay your mortgage.
If you’re lucky enough, you may also be able to pay off your entire mortgage debt with your crypto profits, but once again the source of funds will be examined and if you mention crypto it’ll be subject to even closer scrutiny.
Is it legal to use Bitcoin or crypto profits to pay off a mortgage?
There’s nothing stopping you paying off your entire mortgage with your crypto profits, as long as you’ve first settled your tax liability with HMRC.
In most cases this means completing a Self Assessment tax return and detailing your crypto earnings, as you would income from self-employed or freelance work.
Another liability to consider is Capital Gains Tax (CGT) which is likely to apply if you make a lump sum profit from the sale of crypto, rather than regular income from it.
Like Income Tax, you get an annual tax free CGT allowance which you can offset against your profit, along with the cost of buying the crypto in the first place.
Crypto tax can be complicated and it may be worthwhile getting some expert help from an accountant or financial adviser if you’re confused about what your tax liability is.
Related link: How to avoid Capital Gains Tax on cryptocurrency
Which banks will allow me to use cryptocurrency for a mortgage?
According to the Financial Times (FT), some of the biggest banks in the UK are prepared to accept deposits from the sale of crypto.
Ironically, these three banks have varying levels of crypto friendliness when it comes buying digital currencies from an exchange or transferring profits back into your account.
Related link: The top crypto friendly banks in the UK
According to the FT the next challenge for house buyers is finding a conveyancer prepared to accept crypto proceeds into client accounts.
Like banks, conveyancing solicitors have to verify the source of client funds as part of AML regulations.
As we’ve already mentioned, you’ll need to prepare a detailed paper trail to prove the provenance of your crypto and this may involve employing the services of a qualified auditor.
In a separate report, FT Adviser said that Coventry Building Society is accepting crypto gains towards mortgage deposits, although there didn’t appear to be any mention of this on the lender’s website.
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The future of crypto mortgages
Cryptocurrency is still largely unregulated and this is always going to be a problem for mainstream financial institutions and mortgage lenders.
However, regulators around the world are looking more closely at crypto as adoption increases and it becomes more mainstream.
An increasing number of ‘traditional’ crypto products are coming to market, such as ETFs and loans, and other regulated products are likely to follow.
Although regulation contradicts the original decentralised ethos of crypto, it will likely a herald a greater acceptance among traditional banks.
This could be good news for anyone looking to use Bitcoin or crypto profits to secure a mortgage and get on the property ladder.
Adam is the founder of The Crypto Adviser which offers experts guides and reviews on all things related to Bitcoin and cryptocurrency.
Adam is Diploma for Financial Advisers (DipFA) Level 4 qualified, a Member of the London Institute of Banking and Finance (MLIBF), and has worked for many years as a journalist and PR consultant, having studied with the National Council for the Training of Journalists (NCTJ).