Bounce Back Loans & Property
Can you use Bounce Back Loans for property investment? And will it affect my attractiveness to lenders in the future?
What is a Bounce Back Loan?
Bounce Back Loans are one of the available options of state-backed financial aid available to businesses during the coronavirus pandemic to help keep them afloat through these challenging times.
The loans are available at between £2,000 and £50,000, capped at 25% of the business’ total turnover for the previous financial year, or – if the company is less than 12 months old – at the predicted turnover for the following financial year, with rates rising to 2.5% per year when the repayments begin.
In addition, businesses will be offered the chance to take payment holidays or switch to interest-only payments for a period of time during the loan term, if needed. There is no interest charged to the borrower for the first 12 months and no repayments needed either for the same period. The loans are issued for up to ten years, and there is no penalty to repay the facility early.
Between May and July alone, more than 860,000 Bounce Back Loans were issued, with figures now reaching well over one million to date.
Bounce Back Loan Purpose
The purpose of the loans is to help pay the salaries and running costs of a business during periods of closure, or to help the business create value to achieve the same objective. They’re not intended for the purchase of hard assets such as property.
There have been reports of some lenders accepting Bounce Back Loans as a form of deposit if moved between two companies as an inter-company loan (a loan from one of your companies to another one of your companies) – which to me is madness. On the other hand, it would be delusional to think that some property investors aren’t using the state-backed aid for just that purpose. Purchasing property.
Conversely, while these loans were extended and backed by the government for the purpose of helping people continue as normal, not all lenders see it like that. Many property investors have reported difficulty in securing mortgages as a result of taking out the finance. It may seem against the spirit of the government assistance for lenders to choose not to lend to investors for taking out these loans but – in their minds – it’s still credit that could demonstrate a lack of strength to “ride out the storms,” therefore making the investor insufficiently credit-worthy.
Lenders really want to ensure that companies are not facing on-going challenges which could put the mortgage at risk. I know, ludicrous. So make a note: some lenders won’t take kindly to firms having sought this kind of assistance, even during the extenuating circumstances of an economy-crushing, global pandemic. These lenders won’t take into account the fact that some businesses may use the finance as a “just-in-case” measure, even if they don’t need it at all.
As a business owner, I find it repulsive that some property investors are knowingly using this finance to purchase properties (yes, properties for £50,000 do exist, people). This finance is for growing employers.
On the other hand, these loans are intended to help carry out normal business activities, which I appreciate for some might be property development. So I guess, in some circumstances, refurbishment and construction work would constitute normal business activities. So, in my opinion and in these circumstances, this would be a permitted use of the funds. But read through any Bounce Back Loan terms and conditions and, more often than not, you’ll see that there’s a specific mention that you cannot purchase property with the loan proceeds.
Like anything new and uncharted, there’s always a huge grey area. And it doesn’t help that some well-known property speakers and “trainers” are openly telling people that the finance is “free money” that you “don’t need to pay back.” It just goes completely against not only the spirit of the help, but also normal, logical rules of how a loan works!
According to some sources, this has had the effect of pushing up house prices in the north, where investors are marching to hunt for properties with £50,000 burning a hole in their pockets. Some estate agents are reporting that there are properties worth £40,000 selling for £50,000 just because these novice investors have the money.
The British Business Bank, which is overseeing the Bounce Back Loan scheme, has a team that monitors potential fraud. So I guess it will be a matter of time before these people are found out, or by that time will the damage be done?
My advice – use these loans for their intended purpose, ie: keeping your business afloat, not to add to your property portfolio.
Disclaimer
The author is not an accountant or finance professional. You should always discuss your personal circumstances with an accredited broker or finance professional before making any decisions.
Commercial Office and Retail Pandemic Profit Plunge
Residential property sales may be booming right now, but it’s a different story, of course, for commercial property companies.
The pandemic has had a devastating effect on the profits of many property groups due to lockdowns and the government’s insistence individuals should work from home as much as possible. Then there has been the understandable reluctance of shoppers to venture down the high street for health reasons. At the same time, restaurants have had their opening hours restricted, and pubs banned from selling booze.
It shouldn’t really come as any surprise then to learn that many tenants are downsizing their property projections and commercial property companies are responding by cutting their portfolio valuations – particularly since construction work has also been delayed, in many cases.
Admittedly, it can’t all be blamed on the pandemic though. When it comes to retail shopping was already heading online. Working from home too was already an option for many company employees. What the pandemic has done in these two cases is simply accelerate already inevitable moves.
Pandemic forces portfolio valuations and shares down
Meanwhile, two commercial property companies in particular have revealed how the Covid-19 pandemic has affected them. London’s Great Portland Estates and flexible office unit provider Workspace have both announced a reduction in their share price, as well as downgraded property portfolio valuations.
Great Portland Estates, for instance, only collected 80% of rent due last month – mostly from offices, rather than restaurants and retail outlets. The Group has also been forced to drop rents as a result of vacancies and lockdown. As a result, it has down-valued its commercial property portfolio by at least 6%. Last week it saw its shares fall by 2%.
Land Securities (LandSec), which owns the retail centre Trinity Leeds experienced a huge £945m loss over the past six months. It brings its portfolio valuation down to a loss of £835m.
The FTSE 100 group also has a central London portfolio, valued at around £7.9bn, which makes up around 67 per cent of its assets.
It’s CE Mark Allan, said he believed there would always be a market for high-quality London office assets, making him ‘optimistic’ for the future.
But not all commercial property ventures agree…
Workspace revealed the value of its property portfolio had fallen by 5% over the past six months. For the first three months of the pandemic they offered hard-hit customers a 50% reduction in rent. Their shares fell by 1.3% last week, resulting in a total annual fall of 38%. A statement by the Group, admitted that the pandemic had “fundamentally changed the role and requirements of the office”.
Entrepreneur and Dragon’s Den panel member Theo Paphitis has already said he will be cutting his office space requirements. He added: “I can’t see offices with that many people ever again. First thing I’ll be doing is cutting down the number of people come into the office. We’ll need less space.”
Inner city offices and business areas worst hit
One of the locations most hit by the changing demands for office accommodation is the Isle of Dogs. Skyscrapers in particular, have fallen in popularity, due to the inability to adhere to distancing guidelines in lifts and central areas. Instead, many companies are now seeking self-contained developments.
Wealthy City Dwellers Fuelling UK Property Market Drive
Lifestyle changes are affecting the housing market more than Rishi Sunak’s furlough extension, according to a leading property analyst.
Richard Donnell, Zoopla’s research and insight director, said it was city dwellers selling their £1 million homes that was continuing to prop up the market. Being in lockdown for 50 days, he said, had encouraged them to move to a country or seaside retreat worth half the value of their former luxury pad.
As a result, he said, house prices would continue to grow – even until March when the current furlough scheme and Stamp Duty holiday are due to end. The property portal’s data shows 40% more traffic to their website than the previous year.
Donnell added: “The rate of growth at the end of next year will be less than 4 or 5%, but it will take quite a lot, and quite a dramatic change of circumstances, for house prices to go into negative territory at the end of next year.”
HM Revenue and Customs (HMRC) also noted high sales numbers, with 98,010 property sales going through in September. That number is an increase of 21% on August’s figures, although it is slightly down year-on-year at 0.7%.
London suburbs see biggest price jump for five years
But it’s not only coastal and rural areas that are benefitting. Even the outer suburbs of the capital are cashing in on the dash to get out Inner London. Upmarket estate agency Knight Frank say that at 0.9% they have seen the highest quarterly rise in prime property there for five years.
Home owners in Belsize Park were the biggest winners, with property rising 3.2% there. Next highest was Dulwich with a 2.3% increase in prices, Wandsworth had 2.1% and Wimbledon 1.8%.
London property letting market not as buoyant
Valuations may be higher for home owners, but landlords are seeing a drop in rental values in the prime outer London market, according to Knight Frank. High levels of supply had meant that rents fell 7.6%. In Inner London the drop was even steeper, at 9.1% for the year to October.
The reason there are so many more rental apartments available – 20% more than usual at this time of year – is because of uncertainty surrounding coronavirus.
Average UK house price worth £250,000 say Halifax
Meanwhile, another record was set this month. This time it was the turn of the Halifax House Price Index which recorded the average house price at worth more than £250,000 for the first time in its 37 years.
Lockdown 2 hasn’t had much effect on the property market – physical viewings are still going ahead (albeit in a socially distanced fashion). This compares to the first lockdown when such viewings were banned for a period of seven weeks.
Just one week after Lockdown 2 began, the number of house valuations had gone up by 38%. This second lockdown is due to end on December 2 – but not, it seems, the continued desire for people to move home.
Property Market Propels Forward Despite Lockdown 2
Confused over what Lockdown 2 means for the property market in England? We’re not surprised. But, the good news is – it’s still ‘open for business’ – albeit with strict social distancing rules in mind.
According to Secretary of State for Housing Robert Jenrick, viewings and valuations can still take place when Lockdown 2 kicks in on Thursday, November 5. At the same time, house moves with hire vans and removal firms and can also go ahead, so long as all parties involved wear masks. This includes renters as well as property owners.
Rush to beat stamp duty deadline
This means that buyers keen to save thousands by getting the keys to their new home before the end of March 31, will still be in with a chance since surveyors and conveyancers will still be working (albeit from home). Many are speculating too that because of Lockdown 2 the Stamp Duty Holiday may be extended.
It’s not yet known, however, whether those who already have most of the sale in progress can still go ahead with completion or have to wait until December 2 when Lockdown 2 is due to end. During the last lockdown they were advised to put it on hold until the market opened again. A ruling over this is expected from the government later this week.
It may simply be academic though since its unlikely completions would go ahead within a reasonable timescale anyway. This week, a Rightmove report shows a huge backlog of UK property completions. In Glasgow, 71% of sold properties still have to be completed. Sheffield is next highest with 67% of sold properties waiting to complete. Bristol, Plymouth, Leeds and Nottingham also have big backlogs, according to the number of properties sold on the site.
Physical viewings may still be available
Similarly, we will hear in the next couple of days whether or not estate agents will be able to conduct physical viewings with prospective buyers (otherwise, legally an offer can’t be put in). Just like the first lockdown though, most viewings will be virtual. If it’s allowed then a physical viewing will be merely for ‘finalising’ a prospective buyer’s decision.
Many agents are using their smart phones to talk potential buyers through a property using video, similar to them being there in person. Others have 3D cameras, allowing viewers to conduct their own online tour through a property.
New property continues to be built
There will be no change to the construction industry. Employees can still go on site, builders’ merchants will remain open and tradesmen can enter homes. Jenrick confirmed this week that the government’s plan to build 300,000 homes a year was still “very much on.”
Mortgage holiday extended
House owners who haven’t applied previously for a mortgage holiday from their lender can now do so, for up to six months. Those who have already deferred can continue until they reach the six-month limit. Interest will still accrue over this time.
Landlords given blanket eviction ban over Christmas
Tenants can’t lose their rental property over the Christmas season from December 11 to January 11. At present they must be given six months notice of an eviction – unless particular circumstances prevail ie anti-social behaviour, domestic abuse etc. Tenants living in high-risk coronavirus locations ie those in Tier 2 and Tier 3 can’t be evicted at the moment.
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