Agricultural Mortgages

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What we cover in this article:

  • What is an agricultural mortgage?
  • How much can I borrow?
  • Agricultural mortgage rates and fees
  • Applying for an agricultural mortgage

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What is an agricultural mortgage?

Agricultural mortgages, or farm mortgages, are a type of commercial mortgage that is specifically designed for agricultural, rural or equestrian properties.

They are most commonly used for the purchase or refinance or farms, farmland and the associated buildings.

How does an agricultural mortgage work?

They work 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.

Uses for agricultural funding

Agricultural mortgages can be used to fund the purchase or refinance the above properties. Conversions to properties and expansions may also be acceptable.

Agricultural mortgages can also be used to raise finance for debt consolidation or to purchase new equipment to drive your business forward.

Each business is unique and whatever your borrowing requirements, there is usually a lender who is happy to help.

Types of agricultural property

Agricultural mortgages can be secured against the following property types:

  • Working farms
  • Rural businesses
  • Farms ran as a lifestyle business alongside other income
  • Equestrian
  • Country estates
  • Renewable energy sites
  • Equestrian businesses
  • Can you get a mortgage on agricultural land?

    The simple answer is yes, most agricultural mortgage lenders will lend on pure land. Banks tend to lend higher amounts on land, in most cases 70% of the value. Specialist funders may scale this back to 50-60%.

    How much can I borrow?

    Loan sizes

    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)?

    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?

    Some lenders will lend 70% LTV against agricultural land.

    The deposit needed will be the difference between the purchase price and loan amount offered by the lender. For example, if the lender offers a loan of 70% of the purchase price, the deposit needed would be 30%.

    Agricultural mortgage rates and fees

    What rate will I pay?

    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 2.25% per annum, with most applications being approved at between 2.75 – 7% per annum. Each lender will charge a lender arrangement fee of between 1% – 2.5% of the loan.

    Loan terms are usually available from 5 – 30 years.

    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 of experience in the sector, 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.

    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.

    Applying for an agricultural mortgage

    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 will the lender require?

    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
  • Affordability & your income

    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 in to 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.

    How long does it take to buy agricultural land?

    The mortgage process can take anywhere between 4 and 12 weeks however there can be other delays that impact on the length of time the process takes.

    Other delays can include the legal work involved in carrying out the transaction or whether the vendor is able to complete within this timescale, as there may be a chain involved.

    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.

    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 in to 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.

    We always offer you the best interest rate 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 of experience in the sector, lender may charge a higher interest rate.

    How much can I borrow?

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

    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.

    Finance terms

    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 2.25% per annum, with most applications being approved at between 2.75 – 4% per annum.

    Each lender will charge a lender arrangement fee of between 1.5 – 2% of the loan.

    Loan terms are usually available from 5 – 30 years.

    Timescales & application details

    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.

    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

    Affordability & your income

    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 in to 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.

    Uses for agricultural funding

    Agricultural mortgages can be used to fund the purchase or refinance the above properties. Conversions to properties and expansions may also be acceptable.

    Agricultural mortgages can also be used to raise finance for debt consolidation or to purchase new equipment to drive your business forward.

    Each business is unique and whatever your borrowing requirements, there is usually a lender who is happy to help.

    Types of agricultural property

    Agricultural mortgages can be secured against the following property types:

    • Working farms
    • Rural businesses
    • Farms ran as a lifestyle business alongside other income
    • Equestrian businesses
    • Country estates
    • Renewable energy sites
    • Land

    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 in to 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.

    Covid-19 and UK farming

    As restaurants have closed due to Coronavirus, more people are buying from supermarkets and cooking at home. The man factor here is that most restaurants use imported beef whereas supermarkets tend to prefer British beef, this is a huge benefit to UK farming.

    Working with ABC Finance Ltd

    We work with lenders across the whole agricultural finance market to secure you the best possible deal on your mortgage. Our advisers are experts in their field and give you honest unbiased advice to save you money. We are committed to saving you money, so we don’t charge a broker fee for commercial mortgages over £100,000.

    Once we’ve helped you to select the best possible product, we will submit the application on your behalf and work with the lender. Our goal is to ensure your application has the best possible chance of success and is completed in the quickest possible time.

    Enquire online or call us on 01922 620008 to get started with your agricultural mortgage.

    about-the-author-gary-hemming

    About The Author

    This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

    Gary Hemming CeMAP CeFA CeRGI CSP  -  
    Commercial Lending Director

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