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Landlords with bounce back loans denied new mortgage finance

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Written by: Samantha Partington
23/07/2020
Landlords who took out a government bounce back loan are reporting issues securing new mortgage finance on rental properties.

Property investors took to the landlord forum Property Tribes to express their concerns. Landlords reported rejected mortgage applications by TMW and Paragon because a bounce back loan had been taken out.

One landlord is so concerned the loan will affect his ability to obtain a future mortgage he is considering paying the sum back, having taken it as a precautionary measure.

Banks say that if a landlord has applied for the government loan, it is evidence that their business is struggling. The current response from most lenders is that they will make a decision about whether to lend on a case-by-case basis.

Where there is evidence of a bounce back loan, underwriters will dig deeper into the borrower’s circumstances to make sure they are financially stable enough to take on more finance.

A bounce back loan is a state backed loan of between £2,000 and £50,000, but it is capped at 25% of the business’s total turnover.

There is no interest charged and repayments do not need to be made for the first year. The loans are issued for up to six years, and there is no penalty to repay it early.

Since May, more than 860,000 bounce back loans have been issued.

Andrew Montlake from broker Coreco, 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 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.

“While I understand that lenders are approaching the current environment with some caution, the whole point of the assistance is to help people 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.”

Speaking at The Buy to Let Online Forum earlier this month, Matt McCullough, national sales manager, intermediary mortgage distribution, Aldermore, said: “Bounce back loans form part of many business 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.”

A spokesperson for TMW said: “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.”

Paragon declined to comment.

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