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Agricultural Mortgages

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Choosing an agricultural mortgage

Agricultural mortgages, or farm mortgages, are a type of commercial mortgage that is specifically designed for agricultural, rural or equestrian properties. Agricultural mortgages are most commonly used for the purchase or refinance or farms, farmland and the associated buildings.

An agricultural mortgage works in much the same way as any mortgage. The loan is secured over property and in this case, agricultural land or buildings. The loan is then repaid either monthly or quarterly.

How do agricultural mortgages work?

Agricultural mortgages allow you to raise finance to purchase or refinance agricultural land and buildings. Here’s how agricultural mortgages work:

1

Borrow up to 70% LTV

Agricultural mortgage lenders offer loans up to 70% of the value of the farm, with the remaining 30% being made up of a deposit, or existing equity.

2

Make your agreed repayments

Agricultural mortgages can be taken over a term of 1-25 years, with repayments made either monthly or quarterly.

3

Regularly review your loan

Once your loan is setup and repayments are being made, we will work with you to stay on top of your finances through regular reviews to make sure you’ve always got the best deal.

What factors affect the cost of an agricultural mortgage?

How much your agricultural mortgage will cost you will depend on several factors, the main ones are:

  • Loan size – Your loan size will impact your agricultural mortgage rates with larger loans usually benefitting from the lowest rates.
  • Financial information – Your financial performance will directly impact the costs of your agricultural mortgage.
  • Credit history – Borrowers with a clean credit history will qualify for lower rates.

While these factors will impact the cost of your loan, we always work with you to secure the best possible terms. On top of these factors, which impact your interest rate, other methods can be used to impact your monthly payments.

These include switching from interest only to capital repayment or altering your loan term.

How Can I Get The Best Deal On An Agricultural Mortgage?

Our simple process allows you to find the best deal for your circumstances in 3 easy steps:

Talk to an expert

Call us or fill in our form to get a call back from one of our agricultural mortgage experts. We’ll talk through your situation and look to understand what you need.

We find you the best deal

We’ll then talk to lenders and negotiate on your behalf to find you the best deal. Once we have it, we’ll issue written terms to you and explain everything in simple terms.

We get started

Once you’re happy with a product, we can start the application process. We’re on hand to help, and can handle most of the process for you.

What should I consider before taking out an agricultural mortgage?

Before taking out an agricultural mortgage, you should consider the following:

  • Tax implications: How you structure your transaction can increase or decrease your future tax liabilities.
  • Interest rates: Agricultural mortgages can be taken our with either fixed or variable rates.
  • Mortgage term: How long you borrow the money over can have a big impact on your monthly costs.

Get started – talk to an expert

TALK TO AN EXPERT

What types of property can you offer an agricultural mortgage for?

Agricultural mortgages can be secured against the following property types:

Working farms Rural businesses Farms ran as a lifestyle business Equestrian
Country estates Renewable energy sites Equestrian businesses Agricultural land

How much can I borrow?

Read this section if you’re looking to understand how much you can borrow.

What are the minimum and maximum loan sizes for agricultural mortgages?

We offer agricultural mortgages from £25,000 with no maximum loan size, often lending millions of pounds in a single transaction.

What is your maximum loan to value (LTV) on a farm mortgage?

We can offer up to 70% of the value of the property, land and any other buildings. If you have other property to use as extra security, we can often obtain 100% of the purchase price. The lender will appoint a specialist surveyor to determine both the value and whether it is suitable security for the loan.

The amount borrowed will be subject to normal underwriting checks and must be affordable and the repayments sustainable. Lenders will make an assessment based on the strength of your business and your income and expenditure to determine your maximum loan.

Other factors will be things such as your experience in the sector, your credit history and the type of property offered as security.

How much deposit do I need to buy agricultural land?

The deposit needed will be the difference between the purchase price and loan amount offered by the lender, with many lenders offering loans up to 70% LTV. So, if the lender offers a loan of 70% of the purchase price, the deposit needed would be 30%.

Agricultural mortgage rates and fees

Read this section for detailed information on the costs of taking out an agricultural mortgage.

What interest rate will I pay on an agricultural mortgage?

Each business is unique and the finance terms offered will usually be tailored to your individual circumstances. Lenders will often offer both fixed and variable rates, with fixed rates being available for up to 10 years.

Some lenders will allow you to take out your agricultural mortgage on a capital repayment basis, with interest only periods available for loans up to 50-60% loan to value.

Interest rates usually start from 2.75% per annum, with most applications being approved at between 3.25 – 6% per annum. Each lender will charge a lender arrangement fee of between 1% – 2.5% of the loan.

How do I get the best agricultural mortgage rates?

We always offer you the best interest rates available to your individual situation.

There are a few factors that determine the interest rate and terms offered by the lender, both positives and negatives will be taken into account.

If you have a large deposit for the purchase, or available equity left in the property if remortgaging, this will be a positive point. A strong background in the sector, along with a solid business will also be a plus point.

If you have a smaller deposit or lack experience in the sector, the lender may charge a higher interest rate.

Which bank is best for an agriculture loan?

This depends on your personal circumstances, wants and needs. High Street banks offer agricultural mortgages however they may not be the best option for you. If you don’t fit the High Street you may need a challenger bank or specialist agricultural mortgage company.

We’ll assess this for you and offer a solution based on what you are looking for in the loan and which lender is the best fit.

Who are the best agricultural mortgage lenders?

High Street banks tend to offer the lowest interest rates and may lend up to 70% LTV in some cases, however, criteria can be strict.

Challenger banks and specialist agricultural mortgage lenders are more comfortable at around 60% – 65% but are more flexible in terms of underwriting, criteria and affordability.

Key product features

Key features

Max LTV Up to 70%
Interest rate From 2.75%
Repayment typeCapital repayment, interest only or part and part
Term5-25 years
Interest typeFixed or variable available
Acceptable securityAny commercial or semi-commercial property considered. Land accepted on a case by case basis

Criteria

  • Loans from £25,000 with no maximum loan size
  • Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
  • Minimum applicant age 18 years – no maximum age
  • Available in England, Scotland, Wales and Northern Ireland
  • Adverse credit accepted (on a case by case basis)
  • Products with no early repayment charges available

Applying for an agricultural mortgage

Read this section to gain an understanding of the agricultural mortgage process and how you can apply.

How long do agricultural mortgages take to complete?

Agricultural mortgages usually take around 8 – 12 weeks to complete from start to finish. The time taken for your application to complete will depend on the complexity and nature of the transaction.

If the funds are needed quicker than this, a short-term bridging loan may be a suitable option.

What documents are required when applying for an agricultural mortgage?

When applying for agricultural mortgages, the lender will usually require the following information:

  • Your latest 2 or 3 years’ trading accounts
  • Your last 6 months business & personal bank statements
  • An overview of what your business does and your experience in the sector

What are the affordability requirements for farm mortgages?

The lender will assess affordability using your trading accounts, however, they will work from the EBITDA (earnings before interest, tax, depreciation and amortisation), rather than the net profit. EBITDA removes certain costs from the accounts to give a truer picture of profitability for lending purposes.

Your latest two to three years trading accounts are usually assessed for agricultural mortgages. Some lenders will not only look at these but may use projected income too. If, for example, you are buying a larger site to allow you to expand, projected income for the new site will also come into affordability.

Your personal income will also be assessed but most likely won’t be used for mortgage purposes. Generally, lenders require the business to support the loan.

Can I get a mortgage if there’s an agricultural tie?

The simple answer is yes. Some lenders do offer mortgages to properties with agricultural ties. If there is a tie, please let us know upfront as we will take this into account when sourcing a lender.

An agricultural tie is a restriction imposed, usually by the local council, as to who can own or occupy the land. The tie is imposed to restrict what the site can be used for, i.e. agricultural use only. The person who owns or occupies the site must either work or have last worked, in agriculture.

A tie of this nature can reduce the value of the site when compared to a similar site without the tie. If you suspend or remove the tie, the value will likely increase. If the site hasn’t been used for agricultural purposes for at least 10 years you can apply for a Certificate of Lawful Existing Use or Development (CLEUD). This doesn’t remove the tie but effectively suspends it.

Alternatively, you can apply to the council and request that the tie be removed or variations made. This can be done if the tie is making it impossible to sell the property or if the tie no longer serves a purpose.

Should I use an agricultural mortgage broker?

An agricultural mortgage broker can prove valuable when looking for the best agricultural mortgage company. A reliable advisor will speak to mortgage lenders on your behalf to find the best loan for your circumstances.

Each agricultural mortgage company will have different criteria and offer different interest rates. Most brokers can pick up the phone to their contacts at each lender to discuss your situation and in turn, find the most suitable product for you. You should bear in mind that some brokers charge a fee for this service, either upfront or when the loan completes. ABC finance don’t charge broker fees for agricultural mortgages over £100,000 and never ask for money upfront.

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