Crypto investment popularity is rising, and with many wealthy individuals including cryptocurrency in their portfolios, it wasn’t going to be long before there would be a demand for cryptocurrency-backed mortgages. The idea is that the value of the cryptocurrency is used as collateral for the property, supporting the LTV borrowing ratios without the need to liquidate the crypto holding.
What are the benefits and drawbacks of crypto mortgages?
A relatively new way to secure finance to purchase a property, they offer both benefits and drawbacks. The risks and rewards always need to be carefully considered. This niche area is undoubtedly best explored with the support and knowledge of a finance broker with current market knowledge. Knowing lenders most likely to consider applications is key to sourcing the most competitive rates and terms that protect you as well as the lender.
Some key lenders and crypto loan platforms now offer the opportunity to put up crypto assets as collateral. However, the majority of lenders in the market still require the crypto mortgage to be secured by your home in addition to the cryptocurrency. This over-collaterised lending can mean there is often no longer the need to pay a traditional deposit, and lending rates can be competitive with those of conventional lenders.
When considering a crypto mortgage or any form of crypto-backed lending, you need to consider the impact of a fall in the value of the cryptocurrency. Market volatility can expose you to the possibility of a margin call, so having a cash reserve or liquid asset contingency to cover this is recommended.
Whilst the value of your crypto holding is an affordability factor, the mortgage interest rates offered and lending criteria can vary, with some lenders requiring supporting income statements and credit checks, and be dependent on the value of the property you wish to purchase.
Is crypto becoming more popular?
Trading cryptocurrency through the pandemic saw many investors achieve wealth that they had perhaps never seen before, with funds to make their first property investment. The interest and enthusiasm for cryptocurrency still remain. Amongst high-net-worth individuals, it has been found that around 20% hold a portion of their wealth in cryptocurrencies, tokens and coins.
Whilst the numbers are relatively small, there is an interest and demand. The first Portuguese crypto currency property was purchased in May this year using a cryptocurrency mortgage. With backing from Jeff Bezos, a Columbian real estate company has also piloted Bitcoin property in popular tourist locations in and around Mexico and Columbia.
Protection for international buyers
Deals entirely in cryptocurrency protect international buyers as they are not affected by fees and exchange rates for currency conversions, easing the process across borders. Overseas investors, therefore, have a smoother transaction buying property in a non-resident country. With real-time cryptocurrencies made against the country’s government-issued currency valuation of the property, ensure that valuations remain current. It can and does lead to wildly fluctuating crypto property values, making timing and market knowledge a key asset in deciding transaction timing.
The USA is still in the infancy of cryptocurrency, and the escrow requirements have seen them adopt a hawkish market approach following a series of high-profile crypto lending bankruptcies, leading to asset freezes. This uncertainty and volatility has and is driving the need for diversification, which has seen a realtor and reality TV star open a property listing business which shows properties and brokers ready to carry out crypto property purchases.
Cryptocurrency investors choose to mortgage to avoid selling their crypto holdings and losing the potential for any gains they can still benefit from by offering the currency as collateral instead.
Understand risk and reward before getting involved
It is essential to understand all the risks and potential rewards that securing a mortgage in whole, or part based on cryptocurrency holdings raise. Any rise in the value of the crypto holding whilst being held by the lender belongs to the borrower. However, conversely, a fall in crypto values can see borrowers faced with having to provide additional security or a lender liquidating some of the holdings to cover any missed payments, Expert advice from a lending broker with a history and knowledge of the market is always a wise move to help minimise the risks and source the best terms for a competitive cryptocurrency backed mortgage.
Getting the best crypto mortgage deal
Crypto mortgage deals can vary based on the crypto asset offered, with the more prominent, more common cryptocurrencies such as Bitcoin and Ethereum and stable coins such as USDC and USDT with broader market liquidity and less volatility than other more obscure digital tokens.
To secure the best deal and access to the slim number of mortgage lenders in the UK equipped to deal with crypto mortgages it is worthwhile using the services of a mortgage broker with specialist knowledge to identify the best deal.
The rate of interest doesn’t necessarily define the best deal, however. There are many other factors that a broker can help you evaluate. A mortgage broker will assess the pros and cons of all aspects, such as deposit requirements, early repayment fees, loan terms and security terms in case of default or devaluation, to identify the best overall lending terms.
Cryptocurrency mortgages often offer speedier closure times than traditional mortgages, so it is essential to be prepared and ready to move on approval.
The crypto mortgage market is anticipating higher regulatory measures being enforced as their popularity increases, so the current status quo is always subject to change as governments and lending markets seek to introduce protective measures.
Should you be considering a property purchase in your primary country of residence or overseas, it is essential to fully understand and explore the growing number of cryptocurrency mortgages on the market. When seeking a high-value or non-standard mortgage, we would always recommend that borrowers seek expert advice from a reputable lending broker to help them avoid unnecessary and costly delays and mistakes. They will ensure you are always aware of market factors and regulatory requirements.