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Whilst there are many benefits in using a company structure, the lender will require additional security in the form of Director’s Personal Guarantees. A Deed of Guarantee is a standard requirement from all lenders as they cannot rely on just the company, on it’s own for security, as it is afforded limited liability. A Director’s Personal Guarantee is a formal undertaking in which a company director promises to personally take responsibility for the financial obligations of the company. It serves as a security measure for lenders, as it enables personal assets to be used to cover the company’s debts in case of default. Should the company not fulfil it’s financial obligations to the lender, such as failing to make mortgage repayments resulting in repossession proceedings, the directors will be held personally accountable for any losses incurred.

In the case of a sale at auction, the price achieved may be less than the amount of monies owing and the lender would be able to enforce that any shortfall or remaining balance would be repaid by the guarantor. In such a scenario all personal assets of the director’s would be at risk. It is therefore important that all potential financial liabilities are calculated and reasonably assessed.

The location of the property is important and that there is a ready made demand for tenants. Consideration also needs to be made as to whether this is sustainable. At the time of writing, the rental market trend, nationally is such that demand significantly outstrips supply, but this in the future could be more determined by region and cost-effectiveness. Rent increases may be required to cover costs, but they need to be realistic in terms of tenants own affordability.

Purchase price, loan interest rates and rent received may also play a factor in determining yields. Areas that are highly sought after will achieve better yields than others, however purchase price may also influence investability. Getting the right balance between acquisition costs in prospective areas and rental income is important. This will help reduce risk and ensure better affordability in covering future mortgage repayments.

Independent Legal Advice for a Company Director’s Guarantee is a stipulation of the lender. This is to legally ensure that the guarantee which is personally undertaken, is completely understood. It is also important to confirm that there is has been no “undue Influence” or pressure. The guarantor needs to understand the risks of signing a Director’s Personal Guarantee as it grants the lender the ability to enforce the guarantee against the guarantor.

We offer Independent legal advice for a Buy-to-Let Property Purchase, a Buy-To-Let Property Re-mortgage or for Financing a Commercial Property Development Loan. We work closely with all the major Buy-To-Let company lenders such as The Mortgage Works, Kensington, Precise, Paragon and Foundation Home loans. We are very familiar with each of their particular requirements and are therefore able to complete the process quickly and efficiently online, virtually and remotely.

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Rosie LLB

Solicitor (27 years of experience)

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Poppy LLB