Some business owners that borrowed a bounce back loan are now facing problems trying to prove to a mortgage lender that their current financial situation is good, despite the fact they applied for financial help during the pandemic.
If you need a mortgage but you’ve previously taken out a bounce-back loan, this guide has been written for you. If you have niggling questions of your own and they’re not answered in this guide, you can ask our advisors for help via our online chat or the contact form.
What is a bounce-back loan?
- The Bounce Back Loan Scheme (BBLS) was designed to enable smaller businesses to access finance more quickly during the coronavirus outbreak.
- A Bounce Back loan is a loan that has been backed by the government and is available for sums between £2,000 and £50,000.
- Interest on the loan is waived in the first year and then after 12 months, an interest rate of 2.5% is applied.
- The loan is capped at 25% of the total turnover for the business.
- The scheme closed to new applications and top-up applications on 31 March 2021.
Can I get a mortgage after a bounce back loan?If you can prove that your financial circumstances allow you to comfortably repay a mortgage on top of any other financial obligations you have, you may be able to get a mortgage with a range of lenders.
In the UK, there are hundreds of mortgage lenders. Some are instantly recognisable banks like HSBC or Natwest, others are building societies, like Nationwide and then, there are niche lenders.
Sometimes the bigger banks and high street lenders have mortgage criteria that can exclude borrowers with affordability issues, like bad credit or debt. If you’ve taken out a bounce-back loan, some lenders will view this as a sign that you’ve had financial problems.
After all, the bounce back loan isn’t a grant and after the first 12 months, the loan is charged with 2.5% interest.
If you have additional debt on top of this and your monthly income is low, you might need the help of a mortgage broker who can search the list of lenders in their online network and highlight the ones that you’re eligible to apply with.
Will mortgage lenders decline my application because of a bounce-back loan?If you’ve taken out a bounce-back loan, know that you’re not excluded from owning a home or buy-to-let property. There are lots of lenders that are open to providing mortgages to people with bounce back loans, you just need to be able to prove that your income and circumstances can allow you to meet the repayments each month and then find a lender with criteria that is open to you.
It is not the loan directly that affects your options, but it merely puts you under a bigger spotlight for further checks, which can lead to you not getting a mortgage.
That’s where we come in. To save you the chore of endlessly scrolling comparison sites that don’t include all UK lenders, we take on the responsibility of searching for a mortgage lender and checking your eligibility carefully, before ever recommending that you apply.
Will the BBLS extension date affect my monthly outgoings?On February 8th, 2021, Rishi Sunak announced that businesses that took out government-backed Bounce Back Loans to get through Covid-19 will now have greater flexibility to repay their loans.
Previously, borrowers had up to 6 years to repay their loans, with the first year charged with no interest and the subsequent years charged at a rate of 2.5%.
However, the repayment date has been extended from 6 to 10 years, allowing borrowers to stretch their repayments over a longer period of time, resulting in lower monthly repayments.
While this could make repayments more manageable for many, borrowers will ultimately pay more in interest.
For example, say you took out a bounce back loan of £10,000 over 6 years. The first year has no repayments whatsoever as the government pays the interest during this time.
Your monthly repayments start in month 13 and cost you £187.50. Once the 6 year period is up, you’ll have paid £10,635.42.
However, if you decided to extend your bounce back loan to 10 years, your monthly repayment would cost you £113.43. Once the 10 years period is up, you’ll have paid £11,135.42.
Please note that the figures used in the above example are indicative and could vary from your actual repayment amount.
Getting a mortgage with a high-street bank after a bounce-back loanIn September 2021, Santander changed its terms regarding when it considers a self-employed applicant’s income to be “adversely affected” by the Covid-19 pandemic.
A person will be considered impacted if their staff have previously been furloughed due to business trading conditions in the 12 months before the date of application.t will also apply if they have taken a Self-Employment Income Support Scheme (SEISS) grant or if a limited company has received a Job Retention Scheme (JRS) grant.
Those who have taken a bounce-back, BBIL or CBIL loans in the 12 months before the date of application will also be deemed adversely affected by the health crisis.
Those borrowers falling under the new definition will be subject to additional evidence requirements such as how business turnover and income has been affected and confirmation of outstanding Covid-19 liabilities.
What mortgage lenders accept bounce back loans on an application?Usually, though not always, if you can prove that since you took the loan out that you have ‘bounced back’ it’s generally easier to find a lender. If however, your income is low or it hasn’t recovered since you took out the BBLS, you may find that your choice of lenders is limited.
It’s not solely your BBLS application that can affect whether you can get a mortgage. An important thing to remember is that every lender has its approach depending on its risk appetite.
While most lenders take into account a range of factors such as the type of borrower, their employment status, the sector they work in and consistency of earnings over several years, some focus on certain factors more closely.
For example, the regularity of your income could be something that one lender is very concerned with, while a different lender elsewhere might not have such an issue with fluctuating income that isn’t paid on a specific day, each month.
Knowing this can save you some heartache if you’re knocked back and declined for a mortgage with a bank or building society. While a rejection for a mortgage isn’t great for your credit report and credit score, you may still be able to get approved in the near future with a more suitable and better-matched lender.
Should I get a mortgage if I’m repaying a bounce back loan?Work out your total outgoings against your income, including all of your financial responsibilities. Don’t forget to include regular costs like other loan repayments, utilities, travel expenses, phone contracts, insurance and food costs. While a bounce back loan is a businesses’ debt, as the business owner, you’ll be responsible for repaying it. You might benefit from speaking to an independent financial advisor who can calculate whether any given mortgage amount is affordable for you based on your current circumstances.
If you’ve calculated your costs and you feel that your affordability for the mortgage or remortgage amount you need is good then get in touch with us.
My company can’t afford its BBLS repayments, can I get a mortgage?A bounce-back loan isn’t a personally secured loan so if your company is unable to repay the loan in full, the bank that approved your BBLS will claim 100% of its loss through the Government guarantee after it has exhausted all routes of recovering the debt with the company.
Therefore, your personal finances should be protected if you’ve acted reasonably and responsibly. Your credit score will also be unaffected by any defaults associated with your business’ bounce back loan.
While owing outstanding money through your business isn’t a good indication that your finances are stable, in some circumstances and with advice from a mortgage broker, it may be possible to find an affordable solution if you need a mortgage.
A good mortgage broker will never recommend that you take on unaffordable debt and will always calculate your repayments to provide you with a clear overview of your options. If you’re wondering what the best route of finance is for you and whether or not a mortgage is a good idea, speak to a reviewed professional.
Applying for a mortgage after a bounce back loan
- Find a mortgage broker and tell them about your current circumstances including your age, income, credit issues, your debt repayments, your outgoings and even the type of property you’d like to mortgage. This can help you find out how much you can afford to borrow.
- Find your documents needed for a mortgage application including:
- Passport or driver’s licence
- 3 months of bank statements for proof of income and expenses
- Most recent utility bill (gas/electric/council tax)
- 1-3 years of self-assessed tax return forms (SA302) and tax year overviews
- A chartered accountants certificate (to prove your income is what you say it is).
- Check your eligibility for lots of different lenders with your broker. They can show you the lenders that have mortgage criteria that are open to borrowers that have taken out a bounce-back loan, saving you the bother of trawling through comparison sites and reading the T&Cs of each one to find out.
- Discuss the pros and cons of your options and if you’re ready and happy to do so, choose a lender based on the information and advice provided to you by your broker.
- Once you’ve found a lender, your mortgage broker can prepare your application and help you avoid any mistakes that can cause delays.
- If a lender is happy with your application, it will make you a formal mortgage offer and this will usually be valid for 6 months, meaning that your property purchase must be completed within this time frame.
- Once you have a formal mortgage offer, your conveyancer will arrange for the mortgage funds to be transferred from your mortgage lender to the person you are buying the property from.
Can a mortgage broker help me get a mortgage if I’ve taken out a bounce-back loan?Giving honest, clear and simple advice is at the crux of everything we do. If you feel unsure about whether you’ll get approved or declined for a mortgage after a bounce back loan, ask a mortgage broker to look at your circumstances and then present you with your options.
Once you know what lenders are out there, how much a mortgage could cost you and over what duration, you might find that you have a better idea about what it is you want from an agreement.
Some people prefer the flexibility to make overpayments on their mortgage, so they can chip away at their mortgage balance, while others want the stability of knowing exactly how much their repayments will be each month without the option to overpay.
There are so many lenders and so many different types of mortgages and with a bit of guidance, you may be able to find the right one for you and your plans.
Feel free to call, send us a message via our website or make an appointment to visit out offices and speak face-to-face with a mortgage broker.