Getting a mortgage with a bounce back loan is not as easy as it sounds, but if you are able to get one then you will be in for a treat. According to the statistics, 1.56 million businesses were approved for bounce back loan scheme between May 10, 2020, and May 10, 2021.
Bounce back loans are available only to small business owners who have been affected by the COVID-19 pandemic. The government has announced that these loans can be used to pay off existing debts or to start new ventures.
In this article, we will try to help business owners who have borrowed a bounce back the loan from their banks to repay their debt. These previously taken loans have started affecting the business in starting a new mortgage application. As most lenders are taking much time to validate their current financial situation. As expert mortgage advisors, we will answer the most frequently asked questions on the topic ‘bounce back loan mortgages’ such as what is a bounce back loan, what is the impact of a bounce back loan on a mortgage, will a bounce back loan affect me getting a mortgage etc.
What is a bounce back loan?
The government grants were introduced during 2020 by Rishi Sunak to support businesses affected by the challenging times caused by the coronavirus pandemic such as loans, grants and tax allowances.
The Bounce Back loan Scheme (BBLS) was put in place to help small and medium-sized businesses in a difficult time to borrow up to 25% of a business’ turnover at a low interest rate, guaranteed by the Government. The maximum loan amount was £50,000.
Some of those who reach the eligibility criteria include; self-employed borrowers/sole traders, business partnerships & limited companies.
The Bounce Back Loan Scheme closed to new applications on March 31 2021.
What is the impact of a bounce back loan on a mortgage?
If you have taken a bounce back business loan, you will not be prohibited to taking out a mortgage. A bounce back loan shouldn’t negatively impact your credit score if you cant pay it back. Personal assets won’t be taken, as a bounce back the loan is classed as an unsecured debt.
Some businesses are having a problem proving to mortgage lenders that their business is in a good financial position as they have previously required government support to survive during the coronavirus outbreak.
However, the scheme does not prohibit you from getting a mortgage. If you can provide sufficient financial information to prove your business is thriving, lenders will let you take out a mortgage. This is where the expertise of a Mortgage Broker comes in handy as they know which lenders are more accepting of bounce back loans.
Of course, if you are considering a mortgage, you do need to ensure that this is something that is financially viable for you; otherwise, you could end up with spiralling debt problems. Using online tools such as a mortgage or secured loans calculator can help you to determine affordability with greater ease.
Have I misused my bounce back loan?
On the other hand, BBL borrowers misuse of the business loan can reduce your chances of being accepted for a mortgage application. Some businesses which weren’t financially affected by the Covid-19 pandemic misused the BBLS when it wasn’t necessary for their survival, like intended.
Misuse may include some of the following:
- Using the funds to purchase new personal assets
- Transferring the lump sum to a personal bank account
- Giving the money to a third party, such as a family member or friend
- Funding a significant increase in directors’ salaries or dividends
You must prove to lenders that you needed the bounce back loan when you took it out, and prove to them that you have recovered from the coronavirus situation. One way in which you prove this is showing the lender 4 months of business bank statementsA record of a borrower's financial transactions often requir.... Having a good business credit score should also help, try avoid bad credit.
Lenders have increased their checks to ensure bounce back loans aren’t being misused by business owners, such as a heightened fraud checks and standard checks. There may be extra affordability checks for self-employed applicants.
If you haven’t paid back your loan and you are found to have used the BBLS inappropriately, this can be seen as fraud. You may have to pay the outstanding balance personally. You could also receive a heavy fine.
If you have misused the BBLS but paid it back, you won’t be punished. You still may be looked at unfavourably by the mortgage lender.
The coronavirus pandemic has been tough on all of us and the bounce back loan scheme was a lifesaver for many business owners. However, the bounce back loan caused some problems for mortgage applicants who were unable to repay their loans. If you took out the bounce back loan and are concerned about how it might affect your ability to get a mortgage, speak to our team of mortgage brokers. We can advise you on what steps need to be taken to resolve any issues.
FAQs – Mortgage with Bounce Back Loan
Can I get a mortgage after a bounce back loan?
Yes, you can get a mortgage after taking a bounce back loan during the pandemic. However, some high-street mortgage lenders may not approve your mortgage application without proof that you repaid the loan. The best thing to do is talk to a mortgage broker. They will be able to tell you if there are any additional requirements for you to meet before you apply for a mortgage.
Will a bounce back loan affect me getting a mortgage?
Yes, a bounce back loan may affect your chances of getting mortgage approval. This is because the lender needs to see evidence that you’ve repaid the loan. If you don’t repay the loan, they may think you’re trying to hide something. It is always better to contact a mortgage advisor before starting your application.
What is the impact of this loan on a mortgage application?
A bounce back loan can affect your credit report and cause problems with your mortgage approval. If you previously took this loan, you may need to check your credit report before starting a mortgage application. Some lenders require borrowers to show proof that they repaid the loan. Others ask for proof that the borrower has made up the shortfall between the amount borrowed and the repayment.
Can I get a mortgage as a limited company director?
Yes, you can get a mortgage as a limited company director. However, you’ll need to provide more information than usual. For example, you’ll need to give details of your personal income and expenses. Also, you’ll need to explain why you want to take out a mortgage.