For many limited company buy to let investors, providing a personal guarantee is a real frustration. Fortunately, we have access to one buy to let lender that can provide a solution, as Consultant Broker, Agata Rogozinska, explains.
What is a Personal Guarantee?
Buy to let mortgage lenders use Personal Guarantees (PG) as an additional form of security for your mortgage. In the context of limited company buy to let mortgages, this is sometimes referred to as a Director’s Guarantee but is essentially the same.
Why Do Buy to Let Lenders Require Personal Guarantees?
If your limited company defaults on the mortgage, the lender may repossess the property, as this usually forms the mortgage’s primary security. In the event of repossession, the lender will sell the property to recoup the money they have lent to you. Personal Guarantees are an extra layer of protection should the property’s sale not cover the full loan amount. If the limited company cannot make up the difference, whoever has signed the PG agreement (directors and/or shareholders) is obligated to repay what is owed. Essentially, this gives lenders the legal right to seize other assets owned by directors and shareholders of the limited company to make up the difference.
Can You Have a Limited Company Buy to Let Mortgage without a Personal Guarantee?
Yes, however, very few lenders do not require a PG agreement on limited company buy to let mortgages. Even as an independent broker with access to the whole of the buy to let lender market, we only work with one lender that offers this arrangement. This lender takes the view that the quality of the security property delivering a consistent rental stream and that the people behind the borrowing being able to demonstrate the financial means to cover any voids is enough to satisfy their risk.
The main benefit of not having a Personal Guarantee is that the personal assets of you, the director or shareholder of a limited company, are not liable should the limited company default on the buy to let mortgage. For some of our clients, this is a priority when sourcing finance for their buy to let investment, which we will always try to accommodate.
It’s also worth mentioning that many lenders require you to get legal advice on the personal guarantee from a qualified party not involved in the purchase transaction's legalities. This requirement will result in an additional legal bill for you, which is worth factoring into your investment costs. Without a PG, you’ll only need your usual legal representation for the purchase.
I would say that as so few lenders are willing to forego a PG, it will really restrict the buy to let mortgage finance available to you. You won’t necessarily be able to have the most cost-effective mortgage without a Personal Guarantee in place; ultimately, the choice is always yours. We will provide you with all the options and information you need to make an informed investment decision.
To give you an idea of the current rates from the lender who doesn’t take Personal Guarantees, 75% loan to value two-year fixes start from 2.94%, and five-year fixes start from 3.34%*. Please note these rates are not available on HMO or Multi-Unit properties.
If you’d like more information about securing a limited company buy to let mortgage without a Personal Guarantee, please get in touch with me, Agata Rogozinska, on 01732 471602 or email firstname.lastname@example.org.
*Rates as at 09/03/2021