Agricultural Mortgages

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What are agricultural commercial mortgages?

Agricultural 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.

Read on below to find out more or fill in the form to talk to an expert.

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Criteria

We can offer mortgages for farms and other agricultural properties on the following basis:

1 Borrow up to 70% of the property value.
2 Monthly, quarterly, bi-annual or annual repayments available – to suit your cash flow.
3 Lending available from £25,000 with no maximum loan size.
4 Borrow for up to 30 years.
5 Fixed and variable rates available.
6 Capital repayment with 12 month interest only period available.
7 Each agricultural mortgage will be manually underwritten based on your own individual circumstances, with a tailored solution designed specifically for you..

How do I get the best agricultural mortgage rates?

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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