January 2024: As buy-to-let mortgage rates fall, bringing some relief to buy-to-let landlords, those shopping for a new mortgage deal are being warned by Purbeck Personal Guarantee Insurance, to prepare for a personal guarantee demand.
Personal guarantee requests from lenders for Limited Company Buy-to-Let Mortgages are a common requirement but 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 following property 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, MD of Purbeck Personal Guarantee Insurance said: “The Bank of England’s latest report on the financial stability of the BTL market[i] states that 90% of BTL mortgages are less than 75% LTV and around 80% of landlords hold 4 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.”