COVID-19: are bounce back loans affecting buy-to-let applications?

There have been a growing number of reports by mortgage advisers over the misuse

of Bounce Back Loans that have been claimed by people including existing

landlords. Attempts have been made to use these loans towards the deposit of

purchasing buy-to-let property.

The Bounce Back Loan Scheme (BBLS) is a government scheme solely aimed for

small businesses and self-employed people that have been adversely impacted by the

coronavirus. These loans can be between £2000 up to a maximum of £50,000. No

interest is payable for the first 12 months, after which interest will be payable at 2.5%

fixed per annum; the interest rate being set by the government. The loan may be

repaid back at any time without penalty.

It was announced on 23rd June 2020 by the government, reported by British Business

Bank, that 921,229 Bounce Back Loan Schemes have been approved, amounting to a

total figure of £28.09 billion. The British Business Bank is the UK’s government

economic development bank founded in November 2014.

Lenders already look down upon any form of loan being used as a deposit for

purchasing buy-to-let property. It is therefore not surprising that lenders such as

Precise, Interbay and Kent Reliance have announced that Bounce Back Loans are

also viewed as an unacceptable source of deposit, particularly when they are only

intended for businesses that are struggling with cashflow due to the impact of the


There has been a rapidly rising number of landlords in the past couple of years who

have set up Limited Company Special Purpose Vehicles (SPVs) through which buy-

to-let property is purchased, held and rented out. Some landlords have been able to

apply for the Bounce Back Loan scheme through there.

Newspaper investigations from The Sunday Times, have also been conducted against

Paul Smith, a self-claimed Millionaire Property Investor who posted a Youtube video

advising and encouraging the public to take out Bounce Back Loans to buy property,

even if you aren’t struggling. He went so far as to mention that “you do not have to

pay back the Government bounce back loans.”

The idea of Bounce Back Loans or other government loans that have arisen as a

result of Covid-19 being described as “cheap loans” or “free money” is misleading and

deceptive, particularly when it is put in the context of using it for personal gain.

Vanessa Warwick, Co-Found of Property Tribes, a leading and reputable buy-to-let

forum for landlords, commented to suggest that the video was “ill-advised and

disgraceful” and his comments were “extremely damaging for the public image of

property investors.”

It is very important to be wary and diligent about information that is consumed on

the internet, especially by those openly giving advice without any qualifications about

your finances or knowing your personal circumstances. In an unregulated area such

as Youtube, caution must be met and it is not recommended any action is taken

solely from there, as doing so can likely result in damaging consequences to you and

your personal finances.

Melissa Lawford, a journalist for The Telegraph confirms that a fraud prevention

team has been set up by UK Finance, and is closely monitoring those such as Paul

Smith and other people who may be abusing the government scheme (such as by

providing inaccurate information to make claims for the loan).

It is fair to say that trying to police whether people are using the Bounce Back Loan

for its intended purpose is hard. No real restrictions or enforcement has been put

into place by the government to state how it should be spent. In the case of buy-to-let

it can be slightly overlooked when some Limited Company buy-to-let lenders do not

always ask for proof if the deposit was coming via a Director’s Loan. However we can

expect that most lenders, if not, all buy-to-let lenders will not be accepting Bounce

Back Loans as a source of deposit.

A spokesman from the Treasury re-iterates that “the Government expects everyone

to act responsibly and in the spirit of the package, and only claim and use support as