How bitcoin could be used as collateral for UK mortgages

Bitcoin has long been seen as a speculative investment, but could it soon play a role in something as traditional as buying a home? In the UK, both investors and homeowners are beginning to ask whether the digital asset could one day be used as collateral for mortgages.

Experts say this eventuality could be closer than you think, though there are still big challenges to overcome. Yahoo Finance UK spoke with two industry insiders to break down how bitcoin-backed home loans might work, the hurdles to watch for, and when they could become a reality.

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Imagine buying a UK home with just a handful of bitcoin (BTC-USD). A decade ago, the average house would have cost over 1,000 BTC, but today, thanks to bitcoin’s meteoric rise, that same home can be bought for just around 3.9 BTC. This shift shows how bitcoin holders could potentially soon lend against their crypto holdings to access real-world assets like property.

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Lending against bitcoin: Already happening, but complex

“Lending against bitcoin is already happening, with popular platforms like Ledn and other centralised and decentralised lenders active in the space,” Sygnum Bank digital asset research manager Lucas Schweiger said.

“Some private lenders have even helped clients use their bitcoin to buy property. Australia recently saw its first bitcoin-backed mortgage approved after a favorable court ruling. Even JPMorgan (JPM) now accepts spot bitcoin ETFs as collateral for trading.”

However, Schweiger cautioned that mortgages are more complex than short-term crypto loans. “Mortgages have long durations, so the collateral needs to hold its value over time. Only the refinancing commitment of central banks makes long-term committed mortgages viable for commercial banks from a liquidity point of view.

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“Bitcoin as collateral is not yet recognised in economic practice or regulatory frameworks. Wider adoption would require clearer rules, tax treatment, and proven methods for lenders to manage volatility over time.”

However, despite these obstacles, Schweiger sees positive signs. “Bitcoin reserve bills are proposed in several US states, and major financial institutions are building infrastructure for bitcoin-backed lending. We are moving in that direction, but it will be gradual.”

“With bitcoin’s market capitalisation nearing $2.5tn, it sits alongside the world’s largest assets,” Schweiger said. “Its fixed supply gives it a scarcity profile even stronger than gold, and over the past decade, it has preserved purchasing power in ways most fiat currencies have not.

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"It trades continuously, is easy to verify, and impossible to counterfeit, qualities that strengthen its collateral appeal if short-term volatility is managed.”

He noted that when risk is carefully managed, the chances of lenders losing money on bitcoin-backed loans with extra collateral are very low. The fact that some governments hold bitcoin reserves and that central banks are considering its role highlights that bitcoin is increasingly being treated alongside traditional macro reserve assets.

Managing risk, volatility and safeguards

One of the biggest challenges for bitcoin-backed loans is managing price volatility. Schweiger explained that lenders typically keep bitcoin loan-to-value (LTV) ratios conservative, around 30%–50%, and use strict margin calls or automated liquidation triggers to protect against sudden price swings.

“Because bitcoin trades 24/7 in highly liquid markets, positions can be closed quickly if needed. Some lenders are already able to offer higher LTVs of 60% or more thanks to reliable automated risk management systems,” he said.

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He noted that bitcoin's volatility is structurally declining. “Its three-month annualised volatility has fallen from peaks in 2011 and 2020. While it fluctuates more than most assets, this trend strengthens bitcoin’s case as ‘pristine’ collateral. Lenders simply need to manage the risk carefully over the loan duration.”

Institutional interest is growing

Schweiger said that interest from banks and fintechs is rising. “BlackRock’s (BLK) tokenised money market funds now hold over $2bn and are already used as collateral on major crypto exchanges. A few major financial institutions are building infrastructure for Bitcoin-backed lending,” Schweiger said.

“In the DeFi sector, platforms like Maple Finance are seeing substantial growth. Their bitcoin lending products are attracting crypto funds and institutions such as Cantor Fitzgerald, with total value locked surpassing $2.5bn this year.”

He observed a common progression among banks entering the crypto space — they begin with custody and brokerage services, then offer bitcoin deposits and withdrawals, and the next natural step is providing loans backed by bitcoin. He added that once a major traditional bank takes the lead in offering bitcoin-backed lending, other institutions are likely to follow rapidly.

For many investors, borrowing against bitcoin is appealing because it avoids selling and triggering taxable events.

“As regulatory clarity improves and lenders gain confidence, products using bitcoin as collateral should become more common,” Schweiger said.

“Mortgages are trickier due to their long tenor, but real estate financing backed by bitcoin will likely emerge first in jurisdictions with looser regulatory hurdles and then spread as lenders see proven success.”

Indeed, Schweiger noted that some use cases already exist. “Some clients have used bitcoin to buy property without taking a mortgage. Conversely, it’s becoming popular to increase one’s mortgage to buy bitcoin.”

The UK regulatory landscape and timeline

In the UK, wider adoption of bitcoin-backed loans will hinge on clear regulations. Alex Guts, CEO of Banxe.com, told Yahoo Finance UK that while the UK isn’t opposed to crypto, it hasn’t fully embraced it, which is reflected in current adoption levels.

"To boost bank-crypto integration, the biggest step would be for the FCA and PRA to formally recognise bitcoin as eligible collateral under the UK’s financial framework. Regulators would also need to pair existing markets with these new rules so banks can support BTC without penalty. Without clarity, banks are hesitant to accept bitcoin as mortgage collateral," Guts said.

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He also warned of potential risks for borrowers. “If house prices and bitcoin crash simultaneously, borrowers could face double exposure, losing both home equity and crypto. To avoid this, lenders can use conservative loan-to-value ratios, automatic rebalancing, and mixed collateral strategies.”

However, Guts has predicted a gradual rollout: “With the UK’s new crypto regime expected around 2026, early adoption could occur within five years. Mainstream adoption by high-street banks may take closer to a decade as regulators and institutions gain confidence in the market and technology.”

What’s next for bitcoin-backed mortgages in the UK?

Schweiger believes the infrastructure exists, but wider adoption depends on regulatory approval and lender confidence. “Spot bitcoin ETF assets under management are north of $160bn, and inflows are likely to continue after the SEC approved in-kind redemptions," he said.

"Past lending failures were caused by opaque practices and weak regulation. The future will likely move toward either non-custodian models, where collateral is protected on-chain, or fully regulated custodial lenders.”

Both Schweiger and Guts agree that the trend is inevitable, though gradual. Investors and homeowners may soon have the option to unlock liquidity from their crypto holdings without selling, giving them access to real-world assets like homes while retaining exposure to bitcoin’s long-term potential.

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