Warning over Personal Guarantees required for BTL Limited Company mortgages

New analysis of personal guarantee requests from lenders for Limited Company Buy to Let mortgage, has found that the average personal guarantee requirement was around £509,000 in 2022, up 55 per cent from £328,000 in 2021.  

Purbeck Personal Guarantee Insurance, which undertook the analysis, claims this demonstrates that while Limited Company BTL mortgages have tax advantages, they can also pose a serious financial risk to landlords.

Professional landlords using Limited Company BTL products 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. 

Purbeck’s analysis also shows that the average Limited Company Buy to Let mortgage amount fell from over £1.1m in 2021 to £948,000 in 2022, suggesting lenders are asking for a bigger slice of the mortgage as security in the form of a personal guarantee. 

Purbeck says personal guarantee insurance protection will protect landlords in such circumstances. 

Purbeck managing director Todd Davison says: “Around 40 per cent 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 sales.  

“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.”