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Can You Get a Mortgage to Buy Farmland?
Buying farmland can be a great investment, but finding the right financing can be a challenge. Farmland is unique property and not all lenders are familiar with its quirks and challenges. If you're thinking about buying farmland, here's what you need to know about getting a mortgage.
Are all farm mortgages commercial mortgages?
The nature of agricultural properties means that they generally require a commercial mortgage rather than a residential mortgage.
This is because agricultural properties are generally income-generating, and the lender will want to see evidence that the property can support the mortgage payments.
Lenders perceive agricultural land as a higher risk investment, largely due to the fact that it can be difficult to sell if you need to do so quickly. The commercial mortgage process is generally more complex than applying for a residential mortgage, so it's important to work with a bank or lender that has experience dealing with farm mortgages.
How does an agricultural mortgage work?
Agricultural mortgages work in much the same way as a regular mortgage, with the lender providing the funds for you to buy the property. However, there are some key differences that you need to be aware of.
- First, agricultural mortgages tend to have higher interest rates than regular mortgages. This is because farmland is considered a higher-risk investment.
- Second, agricultural mortgages often have shorter terms than regular mortgages. This is because lenders want to minimise their risk by ensuring that the loan is paid back quickly.
- Third, agricultural mortgages may require you to provide additional collateral. This is because the lender wants to be sure that they will be able to recoup their investment if you default on the loan.
- Fourth, agricultural mortgages may have stricter qualifying criteria than regular mortgages. This is because the lender wants to be sure that you can afford to make the payments on the loan.
What do I need to qualify for an agricultural mortgage?
In order to qualify for a farm mortgage, you will need to meet the lender's qualifying criteria. This will vary between agricultural mortgage lenders, but there are some general criteria that you will need to meet.
- As with any other commercial mortgage, lenders will want to see that the business is viable, with a strong business cash flow and projected income. They will want to see evidence that the farm can support the mortgage payments.
- The mortgage lender will want to be assured that you are a reliable borrower and that you have a good financial history. This means that you have a history of making timely payments on your debts and obligations and a good credit score.
- For a mortgage in the agricultural sector, you will likely need a higher deposit of at least 20%-40%. This is because lenders perceive agricultural property as a higher-risk investment.
- You will also need to provide evidence that you have the necessary experience and qualifications to run a farm. This may include farm management qualifications or experience working on a farm.
- You will also need to provide evidence that the property you are buying is suitable for agricultural use. This may include a farm management plan or an agronomic report.
How much can I borrow with an agricultural mortgage?
The amount you can borrow with an agricultural mortgage will depend on the value of the property and your financial situation.
Agricultural mortgage lenders will typically lend up to 60-80% of the value of the property, but this may vary depending on the type of property and your financial situation.
It's important to remember that you will need to have a deposit of at least 20-40%.
Will I need a business plan for my farming business?
It is likely that you will need to provide a business plan to the agricultural mortgage company, as they will want to see evidence that the farm is a viable business.
Your plan should include information on your farming experience, your qualifications, the farm management plan, the financial projections for the business, and your marketing strategy.
A well-prepared plan will give the agricultural mortgage lender confidence in your ability to run a successful farming business.
Can agricultural businesses remortgage?
Yes, agricultural businesses can remortgage their property. This may be done for a number of reasons, such as to release equity from the property, consolidate debts, or reduce the monthly repayments on the mortgage.
Talk to a mortgage broker who is experienced in farmland loans to get mortgage advice on the best options for your business.
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Applying for an Agricultural Mortgage
When you are ready to apply for a farm mortgage, there are a few things that you need to know. The first thing you need to appreciate is that as a specialist mortgage product, your best chance of getting approved is by working with an experienced mortgage broker.
You'll need to do is find a lender that offers agricultural mortgages. Not all lenders offer this type of finance, for example, mainstream lenders such as banks and credit unions. There are specialist agricultural lenders that you can approach for a farm mortgage, with the support of an experienced mortgage advisor.
Once your mortgage advisor has recommended a suitable lender, you will need to gather together the required documentation. This will vary between lenders, but typically you need to provide financial statements, tax returns, and proof of income.
You will also need to provide evidence that the property is suitable for agricultural use.
It is important to compare the interest rates and terms of the different loans on offer before you apply for a loan. Remember, agricultural mortgages tend to have higher interest rates than regular mortgages, so it is important to get the best deal possible.
Getting a farm mortgage with a bad credit history
It is possible to get a farm mortgage with a bad credit record, but it may be more difficult to find a suitable lender. You may also have to pay a higher interest rate.
If you have a bad credit history, it is important to speak to an experienced mortgage advisor who can help you find a lender that is willing to work with you.
It is also important to try and improve your credit score before you apply for a loan. This can be done by making all of your payments on time and clearing any outstanding debts.
Compare the Best Agricultural Mortgage Rates
With Teito, you can compare agricultural mortgage rates from a range of lenders. We have a team of experienced mortgage advisors who can help you find the right loan for your farm business.
Get in touch with our team today to find out more about our services.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
Last updated 21 February 2024