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Landlords look to coronavirus bounce back loans as deposit for properties

  • 09/06/2020
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Landlords look to coronavirus bounce back loans as deposit for properties
Landlords have been trying to use coronavirus bounce back loans from the government as deposits for new properties.


Several advisers told Mortgage Solutions they had been approached by landlords looking to use the loans in this manner.

The Bounce Back Loan Scheme (BBLS) is part of a package of measures to help struggling businesses cope with the impact of the coronavirus.

Small businesses can receive up to £50,000 through the scheme, with no interest or fees to pay for the first 12 months. After 12 months the interest rate is 2.5 per cent.

Most businesses established before 1 March 2020 can apply for funds.

As of the 31 May, 699,454 loans had been approved through the scheme worth a total of £21.29bn.


Not in the ‘spirit’ of the scheme

Many landlords, especially professional portfolio landlords, have set up limited companies for their businesses in recent years.

The BBLS does not specify how the money should be used, but advisers said using it to buy additional properties seemed against the principle of the scheme.

Howard Reuben, principal at HD Consultants, said: “That is not the true intention of the BBLS and it is stated in the bank’s criteria that it is meant to be used for trading purposes for the Covid-19 affected business which has financially suffered.

“Some businesses are of course seeing the BBLS as ‘good value’ financing to help with cashflow and business continuity, but, taking a wider view and the possible mis-use of the BBLS, who is going to track where the ‘business BBLS’ money is being spent?”

Chris Sykes, mortgage consultant at Private Finance, added: “Lenders have made it clear that bounce back loans should not be used to buy property, like a bank loan is rarely acceptable as a deposit for a property so are the bounce back loans – keyword here being loan.

“In fact, some lenders I have spoken to have been somewhat outraged by the fact we have asked them the question on a client’s behalf as the intended use of these loans isn’t to go and buy a property to profit from.

“It is to help a struggling business with cashflow and getting back to normal during a crisis.”


Some lenders accept intercompany loans as deposits

Lenders do not usually accept loans or any debt as a form of deposit.

Last week One Savings Bank lenders Precise and Kent Reliance for Intermediaries specifically said it would not accept bounceback loans or business interruptions loans as a deposit.

However, some limited company lenders will accept intercompany loans as a deposit, according to advisers.

It means the bounce back loan could be paid into one small limited company and transferred to the other to be used a deposit.

Reuben said: “My team always ask the question regarding the source of the deposit for purchase cases, and we are now giving the banks deeper insight into the source of funds, especially if the deposit is coming from a client’s business account.

“We know that some banks are ok with this, and we know of others who scrutinise it further.”

Stuart Phillips, director at BrokerSense, has also witnessed enquiries from landlords looking to use some or all of their bounce back loan for a deposit on a property.

He said: “Lenders don’t generally accept forms of loans or credit for a deposit because they want the borrower to have some ‘skin in the game’.

“However, there are limited company lenders that will accept director loans as a form of a deposit without always asking to see the donor company’s bank accounts.

“Under UK Anti Money Laundering regulations a broker is obligated to understand the source of this money, and if they know its source is from a loan that would need to be disclosed to the lender.”

A HM Treasury Spokesperson said: “Our Bounce Back Loan Scheme are designed to keep businesses running during this difficult time and have so far helped 700,000 small firms.

“We’ve been clear that the loans must be repaid and banks are undertaking appropriate precautions against fraud, including customer checks and the monitoring of transactions.

“Any fraudulent applications can be criminally prosecuted.”

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