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Lenders demand bigger personal guarantees for buy-to-let landlords

Landlords using limited company buy-to-let are increasingly being asked to commit to a hefty personal guarantee as a condition of the mortgage, which means the landlord’s personal estate can be used if they fall into arrears.

Personal guarantee requests from lenders for limited company buy-to-let mortgages rose to around £509,000 in 2022.

This is a dramatic increase of 55% from around £328,000 in 2021, analysis from Purbeck Personal Guarantee Insurance shows.

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.

Todd Davison, managing director of Purbeck Personal Guarantee Insurance, said: “Around 40% 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.”