Landlords are coming under increasing financial pressure given as reports of a 41% increase [i] in buy-to-let mortgage arrears and a 7% growth [ii] in buy-to-let mortgaged properties taken into possession have emerged.
Mitigating the risks of buy-to-let mortgages has therefore become a big priority and as a consequence, we have seen increasing demand from professional landlords for personal guarantee insurance.
In response, Purbeck Personal Guarantee Insurance is now available specifically for those landlords taking on buy to let mortgages in limited company status. 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.
It’s not surprising that more landlords are choosing to acquire properties using a buy-to-let mortgage in a limited company status, for the significant tax advantages. Indeed around 40% of buy-to-let mortgages are in a limited company structure [iii] and this is expected to grow based on industry research [iv]. Limited company buy-to-let mortgages, can however ,also pose a serious financial risk.
This is because professional landlords are generally asked to sign a personal guarantee as a condition of the mortgage. The mortgage lender is then provided 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.
Mortgage lenders are also now asking for a bigger slice of the mortgage as security in the form of a personal guarantee. In fact, last year, buy to let landlords were typically asked to sign personal guarantees to the tune of £509,000 as a condition of a Limited Company Buy to Let Mortgage. This is quite an increase on £328,000 in 2021 [v].
Personal guarantee insurance (PGI) not only protects professional landlords from the risks signing personal guarantees, as rising costs force some landlords out of the market, the knowledge that their personal estate can be protected, may help others to ride through the current headwinds facing the sector.
Landlords who choose to take out personal guarantee insurance can also benefit from Purbeck’s Support Desk if they begin to face financial distress, offering access to expert financial advice and mentoring support to help prevent business failure.
As income is eroded by rising costs, house values fall and many face the pain of fixed rate mortgage deals ending, it is more vital than ever that landlords seek professional advice before taking on a mortgage. FIBA accredited brokers, for example, give guidance on limited company buy-to-let mortgages, but can also provide advice on understanding the risks of signing a personal guarantee and how to take steps to reduce that risk. Personal Guarantee Insurance is one proven way of doing so.
Purbeck has protected over 2000 small business directors from the risk of personal guarantee backed business loans and consistently achieves a Trustpilot score of 4.8 with 93% of customers rating our service as ‘excellent’.
Contact Purbeck via email or call 0208 004 7250.
References
[i]UK Finance figures show a very large increase of 41% in buy-to-let mortgage arrears in the band between 2.5% and 5% of the balance.
[ii]https://www.yourmoney.com/uncategorized/mortgage-arrears-and-house-repossessions-surge-as-rate-rises-hit-home/
[iii]https://www.hamptons.co.uk/research/articles/september-22-rental-index#/
[iv]https://www.paragonbankinggroup.co.uk/news/news-releases/brokers-forecast-rise-in-limited-company-lending
[v]Analysis of over 400 enquiries for personal guarantee insurance, from professional landlords.
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