Professional landlords are being urged to exercise caution as they navigate new mortgage deals offering reduced rates. While recent cuts to buy-to-let (BTL) mortgage rates and rising house prices present appealing opportunities, a significant catch lies in the increased demand for personal guarantees, particularly for those operating under limited company structures.

Rising personal guarantee demands
According to Purbeck Insurance Services, a leading provider of personal guarantee insurance, the average personal guarantee demanded by mortgage lenders has surged to £424,140 in 2024, a significant rise from £320,298 in 2023. This increase highlights the growing financial risk that landlords face when securing mortgages through limited companies.

Todd Davison, Managing Director of Purbeck Insurance Services, warns, “Limited company buy-to-let mortgages have their advantages but can also pose a serious financial risk—a level of risk that would not be covered by rent guarantee insurance.”

Understanding the risks involved
The mortgage market is currently in a state of flux, with the possibility of further reductions to the base rate appearing unlikely due to a recent rise in inflation. Davison stresses the importance of timing, saying, “If landlords are looking to remortgage to take advantage of the fall in rates or plan to expand their portfolio as the property market recovers, they should know that they will, in most cases, be asked to sign a personal guarantee as a condition of the mortgage.”

This requirement means that if a landlord falls into arrears and the property is repossessed, the lender could seek recourse directly from the landlord’s personal assets to cover any shortfall. This scenario places landlords’ personal finances at considerable risk.

Protecting against financial uncertainty
In light of these risks, Davison emphasises the importance of mitigating potential losses. He advises, “Cutting that risk is key given ongoing uncertainty in the property market. While BTL landlords must ensure they have property, liability, and rent guarantee insurance in place, it’s also important to consider Professional Landlords Personal Guarantee Insurance.”

This specialised insurance can cover up to 80% of an outstanding mortgage if repayments fall into arrears, providing a crucial safety net should the lender take action to recover the property.