New analysis of personal guarantee requests from lenders for Limited Company Buy to Let Mortgages, has found that the average personal guarantee requirement was circa £509k in 2022, up 55% from circa £328k in 202.Â
The analysis from Purbeck Personal Guarantee Insurance, demonstrates that while Limited Company Buy to Let Mortgages have their tax advantages they can also pose a serious financial risk to landlords.
Professional Landlords using Limited Company Buy to Let Mortgages are commonly asked to sign a personal guarantee as a condition of the mortgage. This provides the lender with direct recourse to the professional landlord’s personal estate should the landlord fall into arrears and there is a shortfall following property repossession by the bank.Â
Buy to Let
Purbeck’s analysis also shows that the average Limited Company Buy to Let Mortgage amount fell from over £1.1m in 2021 to £948k in 2022, suggesting lenders are asking for a bigger slice of the mortgage as security in the form of a personal guarantee.
To protect professional landlords from the risks signing personal guarantees, Purbeck Personal Guarantee Insurance has launched the first personal guarantee insurance protection for Professional Landlords. Purbeck Professional Landlord PGI will cover 80% of an outstanding mortgage if repayments fall into arrears and the lender seeks to take action to recover the property.
Part and parcel of insurance cover is access to Purbeck’s Support Desk when a Professional Landlord is facing financial distress, providing access to expert financial advice and mentoring support to help prevent repossession of a property.
Rising costs
Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “Around 40% of buy to let mortgages are in a limited company structure and this is expected to grow based on industry research. However, research by Capital Economics suggests rental income is being eroded by rising costs which may lead to arears and forced sale.
It is therefore vital that landlords seek professional advice before taking on a Limited Company Buy to Let Mortgage, fully understand the risks of signing a personal guarantee and take steps to reduce those risks. Personal Guarantee Insurance is one proven way, but there are additional steps too such as sharing the guarantee.
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