Warning over personal guarantees for buy to let mortgages

An insurance firm is warning landlords about the risks of personal guarantees as a condition of buy to let mortgages.

Purbeck Personal Guarantee Insurance claims the risks are rising as a result of buy to let mortgage rates falling and the increase in landlords choosing to incorporate. 

The company’s analysis shows the average Limited Company Buy to Let Mortgage was £948,000 in 2022; so far in 2023, the average Buy to Let Mortgage has shrunk to £895,000. 

And the latest data shows that in 2023, 74 per cent of buy to let purchases in England and Wales were in limited company status, from 68 per cent in 2022.

The firm says the challenge is that professional landlords using Limited Company Buy to Let mortgages are commonly asked to sign a personal guarantee as a condition of the mortgage, putting their personal assets at risk. Purbeck says it is concerned that landlords should go into a new mortgage with their eyes wide open to that risk.

Managing director Todd Davison says: “A Personal Guarantee gives the mortgage lender the right to seize assets from the professional landlord’s personal estate such as their home, car and money in their personal bank account, should the landlord fall into arrears and there is a shortfall following property repossession by the bank.  

“… Buy to Let mortgages in limited company status have their tax advantages but they can also pose a big personal risk to a landlord.  Professional advice before signing a mortgage agreement is key and given the uncertainty in the property market it is vital landlords consider how to reduce the risk of signing a personal guarantee.”

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