If you’re buying farm buildings or farmland, it’s unlikely you’ll already have the cash available to buy it because of the high prices involved so you’ll need a mortgage to finance the purchase.
Agricultural property is a specialist area and buying it can be complex, especially if it has mixed uses – it could include holiday properties and a farm shop as well as the farm itself, for example – so you’ll need a specialist agricultural mortgage. There may also be specific legal aspects that make the process more complicated.
What is an agricultural mortgage?
An agricultural mortgage is a type of commercial mortgage for borrowing more than £25,000 over a long period, although mortgage terms can range from as little as one year to 30 years, depending on the lender.
Agricultural mortgages tend to be bespoke products, so the interest rate you pay will be based on your specific circumstances, including your level of experience in the farming industry, the value of the property, the trading figures of the business and your credit history.
They can be used for extending or improving agricultural property you already own, buying out a co-owner, refinancing a property and even buying or creating a renewable energy generation site, such as a wind farm, as well as purchases.
How do they work?
Like residential mortgages, agricultural mortgages are secured on property, which is usually the one you’re buying or refinancing. You may be able to borrow up to 60-70% of the property’s value, although up to 100% may be possible if you have additional property or assets to use as security.
Interest rates can be fixed or variable and the frequency of your repayments can often be tailored to suit your cash flow – they could be monthly, quarterly or annually. The mortgage can be taken out on a repayment or interest-only basis.
Unlike residential mortgages, which are usually paid off by a life insurance policy if you die before the end of the term, agricultural mortgages can be passed on to the next generation and continue to be paid off under the same terms.
To assess the level of the risk they would be taking on by lending to you and decide whether to grant you a mortgage, the interest rate to charge and how much you can borrow, the lender will look at a range of factors. These are likely to include:
The value of the property based on a specialist survey.
How much experience you have in farming – you won’t necessarily be turned down if you don’t have any farming experience but you’re likely to be offered the best rates if you do.
The projected income of the farm and sometimes your business plan. The lender will want to see two to three years of trading accounts as evidence that it’s likely to generate enough money for you to be able to afford to repay the mortgage.
Your personal finances, including your income and outgoings.
Your credit record. It’s still possible to get a mortgage if you’ve had credit problems in the past depending on the lender but you’ll be offered a less favourable interest rate.
How much you are able to put down as a deposit – the lower the percentage of the property’s value you need to borrow (known as the loan-to-value or LTV) the lower the interest rate you’re likely to get.
You will normally pay an arrangement fee to the lender of 1-2% of the loan amount along with valuation and legal fees.
As agricultural mortgages can be complex, it can take two to three months for the loan to be granted.
How do you get an agricultural mortgage?
Agricultural mortgages are offered by some high street banks, including Barclays, Clydesdale and Yorkshire Banks, NatWest and the Royal Bank of Scotland, and specialist lenders such as Farm & Country Finance and the Agricultural Mortgage Corporation (AMC), which is part of the Lloyds Banking Group.
It’s best to speak to a specialist mortgage broker rather than contacting lenders directly as they can look at the whole available market to find you the best deal and may have access to deals not available directly from lenders. They will also be able to help you through the application process.
It can be trickier to get a mortgage if the property has what is known as an ‘agricultural tie’. This is a restriction on the property that says it can only be occupied by someone who is currently or was last working in agriculture or their widow or widower. This can reduce the value of the property, as there would potentially be fewer buyers interested if the property was sold, and therefore the amount you can borrow.
If the property you want to buy has an agricultural tie it’s even more important to speak to a mortgage broker, as well as if you’ve had previous credit problems.
Alternative finance options
If you’re not able to get a mortgage to buy a farm – because it’s dilapidated for example – a bridging loan is another option to consider.
These are more expensive than mortgages but are designed to be taken out as short-term funding until you are able to pay back the loan and secure longer-term finance. You’ll need to have an exit strategy in place to take one out, which could be to refinance the property with a mortgage once it’s been brought up to a good enough condition.
They also let you raise money a lot more quickly than with a mortgage as the application process is more straightforward.
Pros and cons of agricultural mortgages
Agricultural mortgages are a good-value way to fund the purchase or refinance of a farm or farmland but the application process can be lengthy so they are not suitable if you need money fast. Lenders also won’t lend on certain properties.
Bottom line
An agricultural mortgage could be your best option for financing a farm but speak to a specialist mortgage broker to get the best deal. You can also compare commercial mortgage rates here.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Cathy is a freelance journalist specialising in money, property, smart homes and technology. She worked at Which? for 12 years, first as a money writer then as an editor, before going freelance in 2018.
She's written for publications including The Money Edit, Ideal Home, Loveproperty.com, The i newspaper, the London Evening Standard. Cathy is also a Homes Under the Hammer superfan. See full bio
What you need to know to rent the best commercial property for you and secure a lease on the best possible terms. Plus, learn how the process works and what experts you need.
Read our in-depth guide to buying a commercial property including factors to take into account when searching for one, the costs involved and the checks to make before you buy.
How likely would you be to recommend Finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Advertiser Disclosure
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
