Can Cryptocurrency Mortgages Ever Compete with Traditional Loans?

As cryptocurrency wealth grows, many investors are discovering that turning digital assets into homeownership remains a challenge. Traditional mortgage lenders remain cautious, viewing crypto income as too volatile and unpredictable. Despite this, as digital currencies like Bitcoin continue to mature and gain legitimacy, the question remains will mortgage providers eventually embrace crypto as a credible financial foundation?

How Bitcoin can be used to boost mortgage prospects

Right now in the US, the regulatory environment around cryptocurrency mortgages is still evolving, but a small number of specialist lenders are tipping their toes into it.

So-called ‘crypto mortgages’ use cryptocurrency holdings as collateral in exchange for a cash loan. The borrower must place their currency in an escrow or custodial account with the lender, and their crypto will be returned to them once the loan has been repaid.

Crypto mortgages are a viable homebuying option for those who have amassed their wealth in the currency, though they have limitations. Firstly, interest rates are high due to the risk associated with the currency’s volatility, and they are typically over-collateralised, meaning the value of the crypto the debt is secured against must be higher than the loan amount.

Lenders can also issue what is called a margin call if the value of the security crypto dips below a certain level, meaning borrowers must add more currency to make up the deficit.

Crypto mortgages are niche products right now, but an increasing number of players are taking up seats at the lending table in the US, including Milo, Figure and Moon Mortgage. Mainstream mortgage providers are, however, reluctant to get involved.

Meanwhile, these products have not yet caught on in other markets such as the UK, outside of high net worth (HNW) lending, but investors across the pond have successfully converted their crypto into fiat currency (GBP) for the purpose of using it as a mortgage deposit.

How big could crypto mortgages become?

Since the landmark approval of Bitcoin Exchange-Traded Funds (ETFs), digital currencies like Bitcoin have become increasingly mainstream. It, therefore, makes sense to see a rise in people using it to buy property, forcing lenders to evolve their policies to keep up.

Could this type of lending ever become truly widespread, though? One expert who is skeptical of this is Lee Trett, director of online financial advice service Money Helpdesk.

“Although crypto has become a major component of the global financial landscape, it is still a niche currency compared to traditional forms of income, and the risk associated with its volatility will likely always be too much for your average high street lender to stomach.

“Here in the UK, it is certainly becoming more common for crypto investors to get approved for a mortgage with a deposit made up of their proceeds from their mining efforts, but there are no signs of a full-fledged ‘crypto mortgage’ hitting these shores, although I did hear rumours that a lender in Ireland was exploring the possibility a few years back.

“Moreover, there is growing demand for crypto-backed mortgages in high net worth circles. Private lenders over here can take a risk on these because their clients typically have vast amounts of capital in other forms, so they can pick up any shortfall if the value of the crypto the borrower used for security was to falter.”

In the US and the UK, there’s no doubt that crypto is gradually becoming less niche in the world of mortgage lending, forcing lenders to run to keep up and introduce new criteria, products and policies that allow crypto investors to use their digital assets to buy property.

No doubt innovative new mortgage products and policies will be introduced specifically for crypto investors in the coming years, but it seems unlikely that true crypto mortgages will become available outside of specialist lending circles and the HNW space for now.