Landlords With Bounce Back Loans Struggling To Arrange Mortgage?

 

Even though Government support in the initial stages of lockdown was very welcome, many people were concerned about potential problems or penalties associated with the assistance. This is why many landlords will be dismayed to learn that some professionals in this field who took out a Government Bounce Back Loan have reported problems in securing new mortgage finance on rental properties.

When you consider the stamp duty holiday that is now in effect, there will be landlords looking to expand their property portfolio. It therefore shouldn’t be a surprise to learn that some professionals are looking to arrange a mortgage, but might be denied because they received assistance this spring.

What is a Bounce Back loan?

A Bounce Back loan is a loan that has been backed by the state for a sum between £2,000 and £50,000. This loan has been capped at 25% of the total turnover for the business. With a Bounce Back loan there is no need to make repayments in the first year. The loans can last for up to six years, and there is no penalty for repaying the loan early.

What is the problem with this style of loan?

On the surface, Bounce Back loans sound favourable to landlords, but the presence of the loan might cause problems.

If there is evidence of a Bounce Back loan, it is likely an underwriter will review the applicant’s circumstances in greater detail. In some cases, this might lead to an application being refused, or the applicant receiving less favourable terms than they expected.

Anyone looking to understand the scope of problems that might arise from this situation should note that more than 860,000 bounce back loans have been issued since May. This is a relatively short time-frame, but it suggests that a lot of people might be affected. Given the financial challenges many landlords have faced in recent times, it wouldn’t be a shock to see many landlords struggling.

Andrew Montlake is a broker at Coreco and he said; “Given the nature of the bounce back loan and its ready accessibility, it seems natural for many businesses and landlords to take advantage of this so they have it as a ‘just in case’ provision. It does not necessarily mean that that they are in any kind of trouble at all. You could argue that it would be remiss of them not to take up the offer.”

Andrew continued by saying; “Whilst I understand that lenders are approaching the current environment with some caution, the whole point of the assistance is to help people to carry on as normal. Not lending to people just because they have taken a bounce back loan seems against the spirit of the government assistance.”

Matt McCullough is a National Sales Manager at Aldermore, and he was speaking at The Buy To Let Online Forum, when he said; “Bounce back loans form part of many businesses contingency plans at this challenging time and so long as a loan taken isn’t being used to fund a mortgage it would be suitable for us. Lenders really want to ensure that companies are not facing ongoing challenges that could in practice put the mortgage at risk. So long as that is also mitigated then there isn’t a real overall issue.”

TMW said, via a spokesperson, “We don’t decline applications just because someone took a bounce back loan. However, if someone had a loan that was still to be repaid, it would be considered as part of the holistic assessment of the mortgage application.”

While there are new challenges to overcome in the housing market, people shouldn’t consider arranging a mortgage to be an impossible task. However, it is vital people accept help and assistance from professionals in the field. If you are keen to arrange a mortgage, speak to a mortgage broker or experienced adviser and make sure you are fully equipped to make an informed decision.