An insurance firm claims landlords shopping for a new mortgage deal may be expected by lenders to prepare personal guarantees.
Purbeck claims personal guarantee requests from lenders for Limited Company buy to let mortgages are a common requirement but - so the company says - can come as a nasty surprise to landlords who have applied for a mortgage in a limited company structure for the tax advantages they can offer.
The personal guarantee provides the lender with direct recourse to the professional landlord’s personal estate should the landlord fall into arrears and there is a shortfall after repossession by the bank.
Currently, all of the rental income made from a property is taxed. Landlords can claim back mortgage interest costs but only up to the basic income tax rate of 20 percent.
The restriction of buy to let mortgage tax relief, also known as Section 24, can be avoided if a buy to let mortgage is taken in a limited company structure.
Todd Davison, managing director of Purbeck Personal Guarantee Insurance, says: “The Bank of England’s latest report on the financial stability of the BTL market states that 90 per cent of BTL mortgages are less than 75 per cent LTV and around 80 per cent of landlords hold four properties or fewer.
“Professional Landlords that fit this profile need to understand that they have options if they are faced with a personal guarantee request.
“Personal Guarantee Insurance is one proven way to reduce the risk, but there are additional steps too such as sharing the guarantee. Taking on a new mortgage in a limited company structure doesn’t have to mean taking on additional personal risk.”
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So the Tenant stops paying and stays in the rental but the landlord looses their personal home. Who in their right mind would ever sign up for that. Put youroney in Paragon 18 month savings account at 5.65%.
This will not be a surprise to landlords operating as a limited company. The clue is in the word limited. Your liability for debts is limited so naturally a lender would want a personal guarantee.
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