Farm Land Mortgages: Everything You Need to Know about Getting a Mortgage on Agricultural Land

According to a report by UK Finance, the trade association for the UK banking and finance industry, the outstanding balance of agricultural mortgages in the UK was £21.1 billion as of Q2 2021. This indicates a significant demand for agricultural land mortgages in the UK.

In this article, we will explore the topic of Mortgage on agricultural land in the UK. We will answer the frequently asked questions as follows –

• What is an agricultural tie and how does it affect the mortgage application process?
• What are the eligibility requirements for getting an agricultural mortgage?
• What factors affect the amount you can borrow for a mortgage on agricultural land?
• What types of mortgages are available for agricultural land, and what are the pros and cons of each?

What is an agricultural tie?

An agriculture tie is also defined as an Agriculture Occupancy Condition(AOC) or a tie which is a legal restriction that limits property occupants. Such agriculture ties were started to enable farms to get planning permissionPermission granted by the local authority for a property to ... for dwellings on family lands including farm workers.

These are the legally enforceable conditions placed on the property by a local council. They can be anything from minimum lot sizes to maximum building heights, but they must be in place for any development to go ahead. The most common type of agricultural tie is one that limits the height of buildings or the size of land parcels, which means that if you want to build a bigger house than what’s allowed under your current planning permission, you will have to get it changed. The other main type of agricultural tie is one that requires the developer to provide some form of mitigation, such as planting trees or creating open space. This kind of tie is often used when there is concern about noise and light pollution and also where there might be issues with water quality or flooding risk.

Post topics:

How do I know whether my existing plans need changing?

Can I appeal against a tie?

How can you get a mortgage for a property with an agricultural tie?

Case study examples

Next Steps

FAQs

Can I appeal against a tie?

Yes, you can appeal against a tie – but only if the tie was imposed without good reason. To successfully challenge a tie, you would need to show that it wasn’t justified by the needs of the community, or that it had been imposed unfairly. In practice, this usually involves showing that the tie has caused harm to the applicant, either financially or otherwise.

How can you get a mortgage for a property with an agricultural tie?

If you’re thinking about buying a farmhouse or rural property, you’ll probably want to take into account the fact that you won’t be able to buy a mortgage for it unless you can prove that the property meets certain criteria such as market rent. These include having enough room for farming activities, and not being subject to any agricultural ties. There is no legal definition of ‘agricultural use’, so lenders will look at the purpose of the property itself rather than just the structure. They will also consider whether the property is zoned for agricultural purposes and whether it has access to farmland. If none of these things is true, the lender will likely refuse to offer you a loan.

However, if you are able to demonstrate that the property meets the criteria for agricultural use, you should still be able to get a mortgage. Lenders will generally accept that the property is suitable for farming, even though it isn’t currently doing so. They will also assume that the land will continue to be used for farming once you move in, provided that you can provide evidence to support this claim.

Case study examples

Bungalow with an agricultural tie and 22 acres – Pipkins Farm has a bungalow, 22 acres of pasture, three stables, a tackroom and a timber agricultural building. The bungalow has a strong agricultural tie. It had been purchased from an old lady who wanted to turn it into a fire and security alarm business and set up apple, livestock and equestrian enterprises. A request for clarification confirmed that the proposed development complied with the minimum building height requirement and a commercial mortgage had been granted by a high street bank.

A self-built house would be ideal if you could afford one! Our clients’ property was too small to allow them to construct a new residence so they decided to live in their existing home until they were able to move into a larger dwelling. They had run an equestrian business on their site as well as both working in the food industry. They achieved planning permission for their new home with an equestrian occupancy condition, but could not find any lenders willing to lend against it. However, when R&B S approached us to see if we could assist them, we rapidly located a bank that was happy to offer finance against the property.

House with agricultural tie – our client found her dream house on a rural estate and asked her current bank for a loan. This has been approved in principle. But when the valuation was done, the valuer found it that there was an agricultural tie. She had exhausted her options for funding the purchase. We were able to find her two mortgage offers from lenders who she was confident would be willing to help out our client.

How does it affect the mortgage application process?

The effects of these types of ties vary depending on the location and the specific tie being applied. For example, a tie limiting the height of buildings may mean that the value of your home drops because it doesn’t meet the expectations of buyers who are looking at homes with higher ceilings.

However, this could also work in favour of the buyer, as it gives them more choice over their purchase. A tie requiring the provision of open space or tree planting could affect the value of the property, but it could also give the buyer more choice over how much greenery they want around their new home. It all depends on the specifics of the tie. If you are interested in applying for an agricultural mortgage, you can contact our team of mortgage brokers.

What are the eligibility requirements for getting an agricultural mortgage?

The eligibility requirement for a farmland mortgage depends on various factors such as the size of the land, its location, and the type of agricultural activity that will be taking place on it. Generally, lenders will require a deposit amount of at least 20% of the purchase price, and they may also require additional security such as a guarantorA person who guarantees to repay a mortgage if the borrower ... or a second mortgage.

There are many other points that you can work on. Below we have provided some of the basic eligibility requirements for farmland mortgage.

1. Purpose of the loan: Agricultural mortgages are typically intended for financing the purchase, development, or improvement of agricultural land, so the loan purpose will usually be a key consideration.
2. Type of property: Agricultural mortgages may be available for a range of property types, such as farms, crofts, smallholdings, or land with an agricultural tie, so the lender may assess the suitability of the property for the intended use.
3. Creditworthiness: Lenders will typically look at your credit history, income, and assets to determine your ability to repay the loan. This may include a credit checkA check of a borrower's credit history, which is used by mor..., income verification, and proof of assets, such as savings or investments.
4. Deposit: Most agricultural mortgages require a deposit, which can range from 10% to 30% of the property value, depending on the lender and the type of property.
5. Income from agriculture: Some lenders may require evidence of income from agricultural activities, such as crop or livestock production, to ensure the viability of the property and the borrower’s ability to repay the loan.
6. Experience and qualifications: If you are a first-time farmer or a new entrant to the agricultural sector, lenders may consider your experience, qualifications, and business plan to assess the viability of the venture and the potential for success.
7. Planning permission and legal title: If you are purchasing a property with planning permission for development or with legal restrictions, such as an agricultural tie, the lender may require evidence of compliance with relevant regulations and permissions.

It is important to note that each lender may have different eligibility requirements and assessment criteria, so it is best to contact the lender or a qualified mortgage broker for more information and guidance on specific requirements.

What factors affect the amount you can borrow for a mortgage on agricultural land?

The amount of mortgage that anyone can borrow on agricultural properties depends on several factors, including the size and type of property, the borrower’s creditworthiness, income, assets and experience in agriculture. The lender may also consider the value of the land and any legal restrictions or planning permissions that apply to it. Additionally, lenders may require a deposit of 10-30% of the property value.

If you are not sure about the application process, then you can also contact an agricultural mortgage broker who can help you in getting a better mortgage deal.

What types of mortgages are available for agricultural land, and what are the pros and cons of each?

What types of mortgages are available for agricultural land, and what are the pros and cons of each?

As a mortgage broker in the UK, I can tell you that there are several types of mortgages available for agricultural land, and each option has its own advantages and disadvantages. Here are some of the most common mortgage types that you may want to consider:

Repayment Mortgage:

With a repayment mortgage, you make monthly payments that include both the interest on the loan and the capital repayment. This means that you’ll gradually pay off the loan over time, which can reduce the amount of interest you pay in the long run. The downside is that the monthly payments may be higher than with other types of mortgages, which can put a strain on your cash flow.

Interest-Only Mortgage:

With an interest-only mortgage, you only pay the interest on the loan each month, and the capital is repaid at the end of the term. The advantage of this type of mortgage is that the monthly payments are typically lower than with a repayment mortgage, which can help with cash flow. However, you’ll need to have a clear plan in place to repay the capital at the end of the term, which can be a risk if you don’t have a clear strategy.

Fixed-Rate Mortgage:

With a fixed-rate mortgage, the interest rate is fixed for a set period, typically 2-5 years. The advantage of this type of mortgage is that you know exactly what your monthly payments will be, which can make it easier to budget. The downside is that the interest rate may be higher than with other types of mortgages, and you may have to pay a penalty if you want to repay the loan early.

Variable Rate Mortgage: With a variable rate mortgage, the interest rate can fluctuate depending on market conditions. The advantage of this type of mortgage is that you may benefit from lower interest rates if they fall, which can reduce your monthly payments. The downside is that the interest rate can also rise, which can increase your monthly payments and make it harder to budget.

Offset MortgageA mortgage where the borrower's savings are offset against t...: With an offset mortgage, you can use your savings to reduce the amount of interest you pay on a loan. The advantage of this type of mortgage is that you can reduce the amount of interest you pay over the term of the loan, which can save you money in the long run. However, you may need to have significant savings to make a significant impact on the interest payments, and you may not earn interest on your savings.

It’s important to research and compares different lenders and mortgage products to find the best option for your specific needs and circumstances. As a mortgage broker, I can help you to navigate the market and find the best deal for you.

 Next Steps

As a mortgage broker, I understand that the process of getting a mortgage can seem complicated, whether it’s a commercial or residential mortgage. This is especially true if you’re looking to obtain a mortgage on a property with an agricultural tie, which can be more difficult to secure than a traditional mortgage. The good news is that with some additional research and the help of a specialist broker, it is possible to find the right mortgage for your needs.

It’s important to note that lenders may view agricultural properties as riskier due to their agricultural ties. For instance, if the land is used for farming or ranching, lenders may be concerned about potential fluctuations in crop yields or livestock prices that could affect your ability to repay the loan. However, this shouldn’t discourage you from pursuing a mortgage on an agricultural property.

At needingadvice.co.uk Ltd, we have a diverse team of specialist brokers, including agricultural mortgage brokers, who have worked with many farmland mortgage borrowers and providers over the years. We understand the nuances of the agricultural mortgage market, and we can help you navigate this complex process with ease. Don’t hesitate to contact us for assistance – we’re here to help you find the right mortgage for your agricultural property.

FAQs

What is the full form of AOC?

AOC means Agricultural Occupancy Condition which is a type of agriculture ties supervised by local planning authority. How does an AOC affect my ability to borrow money? The main effect of an AOC is that you cannot get a mortgage on the property without first proving that the property is suitable for agricultural use. You may need to seek professional advice before deciding whether or not your property is eligible for an AOC.

Can I buy a property with an AOC?

Yes, but only if the property is suitable for agricultural use. If you have a property with an AOC, then you must prove that the property is suitable for agricultural use. This usually involves providing evidence such as a farmhouse plan; proof of agricultural income; a letter from a farmer confirming that the land is being farmed; or a statement from the local planning authority stating that the land is suitable for agricultural use.

What is an agricultural dwelling?

An agricultural dwelling is a property where at least 50% of the floor area is used for agricultural purposes. An agricultural dwelling can include buildings such as barns, sheds, outbuildings, greenhouses etc.

How do I apply for an AOC?

You will need to contact your local planning authority to obtain more information about how to apply for an AOC. There are many different types of AOCs available depending on the requirements of the local planning authority. For example, some AOCs may require you to provide a farmhouse plan showing all the rooms within the building. Others may require you to provide a letter from the farmer confirming that the land is being farmed. Some AOCs may even require you to provide a letter from the local planning authority stating that the land is suitable for agricultural use.

When will the local council offer a certificate of lawfulness?

The local planning authority should issue a certificate of lawfulness after completing its assessment of the proposed use of the land. Once this is issued, you can proceed with buying the property.

What is an agricultural restriction?

An agricultural restriction is a legal agreement between the owner of the land and the local planning authority. It restricts the use of the land for non-agricultural purposes. In order to gain approval for an agricultural occupation, the property needs to meet certain criteria. These criteria are set out in the Local Plan and will vary according to the specific circumstances of each case. The best way to understand what is required for an agricultural occupation is to speak to a specialist solicitor who specialises in advising clients regarding agricultural restrictions. In addition, you should also check the relevant section of the Land Development Act 1985 to see what conditions apply to the particular development.

While talking about agriculture restrictions, there are some common topics that you may be looking for such as ‘mortgage for a property with agricultural restriction’, remortgageRefinancing an existing mortgage with a new mortgage. for a property with agricultural restrictions, a loan for a property with agricultural restrictions, and finance for a property with an agricultural restriction. There are also some more agricultural restrictions that we have discussed above.