With stamp duty measures encouraging people to buy property, it is likely a lot of households will consider applying for a mortgage. When you consider the challenges many people, households and businesses have faced in 2020 because of the COVID-19 pandemic, it is positive to see so many people feeling optimistic as to what will happen in the rest of the year.
One industry expert has predicted the stamp duty holiday will lead to 100,000 additional sales in the housing market. This is a considerable sum, and one which will provide significant confidence in the property market.
However, there have been reports that some people are experiencing challenges in their mortgage application, because of assistance they have received. Anyone who has received a Bounce Back loan for their business might find arranging a mortgage becomes even more challenging.
This issue has been primarily flagged as a concern for landlords looking for a mortgage to expand their property portfolio, but it is an issue all prospective home-buyers should consider.
What is a Bounce Back loan?
A Bounce Back loan is a loan which has been backed by the state and is available for sums between £2,000 and £50,000. The loan is capped at 25% of the total turnover for the business. There is no need to make a repayment in the first year of the loan, and even though the loan can run for up to six years, there is no penalty for an early repayment of the loan.
Is there a problem with these loans?
It appears that when an underwriter finds evidence of a Bounce Back Loan, they will review the application more closely. There have been reports of some applications being refused when the applicant has a Bounce Back loan in place. Similarly, some applicants have found they receive an offer which wasn’t as appealing as they hoped to receive.
With around 860,000 loans of this nature having been issued since May, there will be many people looking on with interest and concern.
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.”
Anyone looking to arrange informed and up to date guidance regarding a mortgage should speak with an experienced professional.