Does Investing In Crypto Affect Mortgage

Cryptocurrency exchange and trading have risen in popularity over recent years, with many people holding their wealth in different forms of cryptocurrency.

However, investing in crypto may affect your mortgage application since it’s still considered risky, and mortgage lenders are concerned about anonymity. 

That’s not to say you can’t get a mortgage by selling your cryptocurrency holdings and putting down the proceeds as a deposit. 

So, does investing in crypto affect mortgage deals? Even if it does, there are ways to invest in crypto and still qualify for a mortgage. Keep reading to find out more.

How Does Investing In Crypto Affect Mortgage?

Most mortgage lenders don’t look at cryptocurrency favourably owing to its volatile and anonymous nature. 

It’s difficult to track its source since the market is unregulated, unlike the Great British Pound, governed by the Bank of England and UK government. As such, there is a high risk of fraud, such as money laundering and gambling. 

Moreover, cryptocurrencies like Bitcoin and Ethereum keep appreciating and depreciating in value with high levels of volatility. In other words, crypto is a high-risk investment as it’s difficult to analyse how much one can earn or lose in the future. 

It’s, therefore, very unlikely that lenders will consider applications with crypto assets as a deposit source due to changes in their value, which can be hard to quantify. 

Due to the volatility, it’s difficult to know whether its value will remain consistent to be used as a deposit for a house purchase. 

Also, as it is difficult to trace, it is harder for the solicitor to keep to their anti money laundering guidelines. 

What Do Mortgage Lenders Consider As Income?

Cryptocurrency isn’t generally considered as income owing to the risk involved. Lenders prefer the following income sources on mortgage applications:

• Wages and salary
• Shares
• Self-employed income
• Sustainable investments
• Pension
• Commission and bonuses

Can Investing In Crypto Help Mortgage Applicants?

If investing in crypto assets is not playing any role in the mortgage application, i.e is not being used for the deposit or there is no reliance to use it as income, lenders will typically be ok with it.

They just may query to make sure definitively that it is not playing any role in the mortgage application, i.e look back further over previous deposit build-ups to make sure the deposit did not originate from crypto.   

Certain Lenders like Barclays are open to allowing cryptocurrency to play some role in the mortgage process. You can use the profits obtained from investing in crypto to:

• Pay off the mortgage bill completely after being approved
• Make a mortgage deposit on a case-by-case basis.

How Can You Qualify For A Crypto-Friendly Mortgage?

While investing in crypto may negatively impact the mortgage process, the good news is that you can still qualify for a mortgage with certain lenders. 

There is no way to make direct crypto transactions, but you can convert your Bitcoins, Ethereum, or other crypto coins to pounds sterling by selling or exchanging them. 

The income or profits earned from the sale can be used as a deposit, as has been discussed with certain lenders. This is usually on a case-by-case basis.   

However, proceeds obtained from crypto sales should be declared through the HM Revenue & Customs (HMRC) so that they can be taxed accordingly. 

If you sell cryptocurrency, you will have to pay capital gains tax. Also, crypto trading will incur income tax.

That’s not all; make sure you submit a proper paper trail that documents the source of your crypto purchases and sales and have this on hand for your mortgage application. 

After all, every lender must ensure that the funds received meet the Anti-Money Laundering regulations. 

In case of any unclear or suspicious activities, you might get declined for the mortgage and reported to the HMRC if significant concerns are raised.

How Do Mortgage Lenders Conduct An Affordability Assessment For Cryptocurrency Mortgages?

When applying for a mortgage with cryptocurrency as a deposit, the first step is to gain the lender’s trust. And the best way to do so is to provide ample evidence that suggests a legitimate deposit source. 

In other words, you should have sufficient paperwork in place that reflects your tax payments and the following information:

• The source of money used to buy cryptocurrency
• When and where you sold or traded it
• Crypto holdings and valuation
• Place of holding

You also have to provide a few documents so the lender can determine whether or not you can pay the monthly mortgage repayment on an ongoing basis. 

Here is a list of factors mortgage lenders consider when assessing the affordability of crypto-friendly mortgage applicants.

• Annual gross income
• Age of the applicant
• Expenses, such as food costs, household bills, debt, and childcare 
• Credit score and history
• Deposit size

As you can see the main emphasis of this article is around crypto as a deposit, ongoing affordability is like any other mortgage application based on the factors detailed above. 

How Do You Improve Your Chances Of Getting A Mortgage With Crypto?

Eligibility criteria for getting a mortgage may differ from one lender to another. 

So, even if your mortgage application for certain lenders does not fit due to bad credit or a cryptocurrency deposit source, you can still find a lender who might approve your mortgage.

Here are a few tips to help improve your chances of buying a home with crypto assets as a deposit:

1. Gather documents

Present your case to the lender by providing all the documents needed to gauge your application. 

The documents may include the last three to six months’ bank statements, acceptable forms of ID, passport, payslips and paperwork for your crypto holdings.

2. Assess Your Credit Report

Ensure there are no inaccuracies on your credit report. 

Certain crypto-friendly lenders may accept your case with bad credit on your file, an experienced broker will prove essential here. 

3. Put Down A Larger Deposit

If you can sell or trade a larger portion of your crypto holdings to put down a larger deposit for your mortgage, this will lower the loan-to-value (LTV) ratio, so you borrow less at lower interest rates potentially, and a lower LTV will open up the possibility of more lenders. 

4. Seek Advice From Specialised Brokers

Lastly, seek advice from a broker with ample experience in crypto mortgages. They will help you contact lenders who look at crypto investment more favourably. 

A specialised mortgage broker may also help prepare the paper trail needed to showcase the origin of your crypto assets.

Frequently Asked Questions (FAQs)

1. Does Investing In Cryptocurrency Impact Credit Score?

Buying and trading cryptocurrency may impact your credit score. However, this will only be if you have used loan funds and credit cards to make the investments and then have not kept to these commitments on time. And, of course, a low credit score can impact your ability to apply for a mortgage. 

If you get a mortgage with bad credit, you might incur high interest rates and charges. 

2. Should You Repay Your Mortgage Early With Cryptocurrency Profits?

As mentioned earlier, the cryptocurrency market is highly volatile, so consider your crypto investments’ stability and risk tolerance. 

Just make sure you review the mortgage terms to ensure there are no restrictions or penalties for early repayment. The penalties may outweigh the pros of paying off your mortgage with crypto profits early.

3. Can You Buy A House With Cryptocurrency?

Yes, profits from selling or trading digital assets like Bitcoins, Litecoin, Steller, and others can be converted into legal cash. 

This can be used as a deposit to buy a house as we have outlined it’s within certain lenders criteria.