Bounce Back loans used on buy-to-lets are inflating prices

Property investors are using an emergency government scheme to snap up houses, writes Melissa Lawford

Investors are using emergency government coronavirus loans to snap up buy-to-let properties, which is artificially inflating house prices in the North, agents have warned.

Max Armstrong of North East Property Investment, a buy-to-let specialist, said “a lot of Bounce Back loan money” was driving up prices in northern investment markets in cities such as Sunderland.

“People are coming up from London and buying properties for £50,000 without even looking at them because they have their Bounce Back loan in their pocket,” he said. “They’re paying that even when the properties are only worth £40,000.”

Many of these opportunistic buyers are investing for the first time, said Mr Armstrong. “Every day we have two or three inquiries from these people.”

The government-backed scheme is designed to help small businesses that have been hit by coronavirus and offers loans of up to £50,000 interestfree for the first year.

A Treasury spokesman said borrowers were not allowed to use the money for personal gain and had to confirm that the cash would be used “wholly for business purposes” when they applied for the loan, but that this was difficult to police. This summer Telegraph Money reported that some business owners were trying to use the Bounce Back loans on house deposits and supercars. Lenders will not give mortgages to buyers who are trying to use loans for a deposit. But in the parts of the country where house prices are lowest, investors can buy a property outright in cash, so are not restricted by these borrowing rules.

Tim Coen of North Property Group, an investment specialist, said that while buyers had not specified that they had Bounce Back loans, “we’ve certainly had people calling to say they have £50,000 to spend”.

The terms of the Bounce Back loan state that the borrower must use the loan only to provide economic benefit to their business, and this includes investment. Landlords who operate using a limited company may have taken out loans to buy a property and grow their portfolios, said Mr Coen – which is allowed, in theory. Those who got a Bounce Back loan for another type of business are not meant to use the money to invest in property.

The pandemic has also led to a surge of investors looking to enter the buyto-let market because the stock market has been so volatile, he said.

The stamp duty holiday has also played a part, cutting tax bills for investors by £1,840 on average, according to Hamptons International, an estate agent. Now they must only pay the three percentage point surcharge.

Elliott Draper of Marshall Property, an estate agent in Liverpool, said the market there had soared. Before the pandemic, buyers from southern England accounted for half of investment purchases in Liverpool; now their share has jumped to three quarters.

Half are first-time investors, many of whom have been spurred to buy because “the interest rate from banks is useless”, said Mr Draper. Yields in Liverpool are 8pc, rising to 12pc in the north of the city, he added.

The surge of investors has helped to push house prices up by 15pc in some parts of the city, said Mr Draper. “It is the cheaper stuff that is going up in value most and investors are absolutely driving that,” he added.

Some think the boom will be shortlived. “We’ve been telling investors to just sit tight – it’s not a good time to be buying,” said Mr Armstrong.

Many analysts have warned that house prices could fall as other government support measures such as mortgage holidays and the furlough scheme wind down in the autumn.

A spokesman for the British Business Bank, the government-owned development bank behind the Bounce Back loan scheme, said it had set up a group to monitor fraud, which met weekly.

‘People are coming from London and buying properties without even looking at them’