Agricultural and Farm Mortgages
Looking at ways to finance buying a farm? Agricultural mortgages are available! Find out what the rates are and exactly how to get one in our expert guide.
Firstly, what type of land or property do you need the mortgage for?
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Dreaming of running your own farm, smallholding or equestrian business? You’ll probably need a mortgage to fund your ambitions, and standard deals just aren’t going to cut it. Luckily there are specialist agricultural mortgages available that could offer the finance you need.
This guide will tell you everything you need to know about this unique mortgage offering, and crucially, how to source the deal that’s right for you.
What is an agricultural mortgage?
An agricultural mortgage is a type of commercial mortgage, albeit one specifically designed for farms, equestrian properties, smallholdings and similar agricultural businesses where standard mortgages or funding avenues are insufficient.
Such mortgages can be used to:
- Buy a new farm or agricultural business outright, including land and any associated buildings.
- Expand a business by purchasing additional buildings or renovating current properties (including owner-occupied premises).
- Refinance an existing mortgage agreement, perhaps to buy out a partner or release equity to support business activities.
- Diversify or convert a current business, such as by adding a farm shop or holiday let.
Agricultural mortgages can be called different things depending on the nature of the business, such as farm mortgages or smallholding mortgages, though their core features will normally be similar.
The complexity of these deals means it can be difficult to know where to start, but luckily there are brokers who specialise in agricultural mortgages and can offer the support you need.
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How do they work?
As with all types of mortgage, agricultural mortgage loans will be secured on the property or land that you’re mortgaging, and interest rates can be fixed or variable – and you may even be able to switch between the two.
They’re highly flexible in nature, with terms and repayment schedules that can be tailored to your business’ needs and cashflow. Lenders often allow you to pay quarterly, bi-annually or yearly rather than monthly, and although typically arranged on a repayment basis, some lenders will offer interest-only periods as well.
Getting an agricultural mortgage: a step-by-step guide
Ready to get your application off the ground? Here are the steps you need to take.
Step 1: Get your business plan together.
Your business plan will be a core part of your application.
You’ll need to create a detailed proposal outlining how you’ll use the funds, and will need to include a wealth of supporting information including:
- Your background/experience in agriculture (if you’re new to the industry, you may be asked to provide a personal guarantee before you’ll be offered a mortgage).
- Details of the property or land you’ll put up as security, alongside any existing borrowing agreements.
- How much you’re looking to borrow and for what purpose.
- Details about your business, the market in which it’s operating and your management team.
- Financial records and/or forecasts.
- Your exit plan.
Step 2: Speak to a mortgage broker who specialises in agricultural mortgages.
This is a very niche area of finance and as such it’s essential to have an advisor on-hand who can help you navigate it. A specialist commercial broker will know the lenders to approach based on your circumstances to give you the best possible chance of success, and they’ll use their contacts and in-depth knowledge to source the very best rates.
Not only that, but they’ll know how to present your agricultural business in the best possible light to secure maximum funding, which can be invaluable when you’re trying to close a deal.
Step 3: Prepare your accounts.
You’ll need to get your accounts in order too, with lenders expecting to see plenty of documentary evidence to show your business’ finances. This means you’ll need to compile six months’ business bank statements alongside three years of certified accounts – or in the case of start-ups, three years of income projections – as well as an assets and liabilities statement.
Though personal income isn’t such a factor, you’ll still need to get your personal bank statements together, as some lenders will factor this into their affordability calculations.
Your broker will tell you which documents you’ll need to present and help you prepare your paperwork.
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What’s the affordability criteria?
The affordability criteria is centred on the viability of your business, with both the mortgage amount and terms you’re offered based heavily on your financial returns and the value of the land itself.
All mortgage offers will be decided on a case-by-case basis, rather than based on standard income requirements.
That said, you’ll be expected to show that your business is profitable – lenders will use your trading accounts to assess this and will usually work on the EBITDA model, where your earnings before interest, tax, depreciation and amortisation are used rather than net profit.
Your personal income isn’t normally a factor, though some rural mortgage lenders will allow you to combine your business and household income, as well as additional assets, for a higher mortgage offer.
Deposit requirements are far higher than for residential mortgages, with many lenders asking for at least 30% upfront.
It’s rare to find loan-to-values (LTVs) above 70%, though it is possible, and a specialist broker can help you identify the lenders who could accommodate.
How much you’ll be able to borrow will vary depending on your business’ unique circumstances, but given that there’s no income multiples or similar to consider, loan amounts can be vast.
These mortgages typically start at a minimum of £25,000 and can rise to the tens of millions, though they’ll always be based on a percentage of the property’s value.
Crucially, this includes the value of the land, which allows for increased capital raising. It’s worth using a farm mortgage calculator for an accurate estimate of the amount you’ll be able to borrow, which can often be found on rural mortgage lenders’ websites.
Some agricultural properties have what’s known as a positive covenant stipulating that it must be used for livestock, or there may be similar agricultural ties that restrict the land, what it can be used for and even who can own it (they must have worked in agriculture, for example).
This can impact the value of the land and therefore your borrowing profile, and it’s essential to find a lender who can work within these parameters, as not all do.
Which lenders offer agricultural mortgages?
Agricultural mortgages are certainly not a mainstream offering, and although you may find some recognisable names in the sector – Barclays and Lloyds Bank, for example – such deals are more readily available via specialist rural mortgage lenders.
Yet because they aren’t always easy to find, it’s vital to speak to a broker beforehand to avoid the guesswork.
What are the rates like?
Interest rates tend to be far higher for agriculture mortgage loans than for standard residential deals. Currently (May 2023) typical rates will likely be somewhere between 5%-10%.
The rate you’ll be offered will always be determined on a case-by-case basis and will be heavily influenced by your business plan, level of deposit and background in the sector, not to mention whether you’re opting for a fixed or variable interest rate.
What about fees?
Fees can also be higher than in the standard mortgage arena, with arrangement fees typically starting at around £2,500, and in some cases rising to £5,000 or more.
You may come across commitment fees as well – a common cost in the commercial sector – as well as valuation and legal fees, which can also be higher than normal.
Farm Mortgage Calculator
Now you know what the typical interest rates and lending criteria are, use our calculator below as a guide to what the repayments could be for your new mortgage. It only takes a few details.
Farm Mortgage Calculator
Our farm mortgage repayment calculator can tell you how much your mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate, and our calculator will do the rest.
Monthly Repayments:
Total amount paid at end of term:
Get started with an expert broker to find out how much they could help you save on your mortgage repayments.
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Get matched with a broker who specialises in agricultural mortgages
The best way to find such a niche mortgage is to speak to a broker who specialises in agricultural mortgages.
They’ll know the market inside out and as such will know the lenders that are best-suited to your circumstances, and can help you source the best possible rates. We can help you find that expert.
Our broker matching service will pair you with a broker who arranges this type of commercial mortgage every day, letting you benefit from their expertise and network of contacts to leave you with the deal that’s right for you.
The initial consultation’s free and there’s no obligation, so call us on 0808 189 0463 or make an enquiry to get started.
Get Started with a Broker
Maximise your chance of approval with specialist advice from an expert in Agricultural Mortgages.
FAQs
No.
Residential and even standard commercial mortgages won’t be sufficient in this sector; the complex nature of many farming businesses needs a specialist loan to accommodate, and most mainstream lenders won’t even consider offering mortgages in this space.
Seeking a specialist farm mortgage is by far the best, and often the only option.
Yes, in fact you’ll be able to remortgage much in the same way as you would a standard loan.
Your first step in securing an agricultural remortgage should be to speak to your lender to see what the options are, though you may want to speak to a broker to see if there are any alternatives too.
Ask A Quick Question
We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different types of commercial mortgages. Ask us a question and we'll get the best expert to help.
Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
