Getting a mortgage on a farm land (5+tips)

In this brief guide, we are going to discuss getting a mortgage on farm land, what to consider when looking to get this kind of mortgage.

If you have a farm land and you need additional capital to enhance your farm land or maybe you need additional capital to invest in new equipment then a farm land mortgage could be suitable for you.

Most commercial mortgage lenders who offer farm land mortgages will want to see that the borrower has some experience in dealing with farmlands and a suitable business plan.

This guide gives you an overview of what you can expect when applying for a farm land mortgage.

Getting a mortgage on a farm land

Getting a mortgage on farm land is similar to getting any other kind of commercial mortgage. You will be able to get a mortgage on a farm land if you can provide adequate security in the form of a mortgage deposit or other collateral to secure the mortgage.

As with most commercial mortgages, you can expect the mortgage rates for a mortgage on farm land to be much higher than residential mortgages and the number of mortgage lenders competing in this market space to be much smaller.

Farm land mortgages are more commonly known as Agricultural mortgages. They are able to provide farmers with lines of credit to fund:

• Farming / agricultural land
• Improvements or extensions to the current farm land
• Farm homes
• Associated farm buildings
• Equestrian land and associated buildings
• Renewable energy sites
• Country estates

What to consider when getting a mortgage on farm land

• Agricultural mortgages or farm land mortgages can either be capital repayment or interest-only
• A farmland is defined by the restrictions placed on the title of the land.
• You may be required to have planning permission
• You will need to pay a mortgage application fee
• You may need to pay a fee to your commercial mortgage broker
• You will need a conveyancer and will need to pay them
• You may need to pay stamp duty commercial property.
• You will need to detail what you plan to use the farm land for
• You will need to explain your experience for your specific use of the land.
• The mortgage lender may insist on an in-person mortgage valuation.
• You will usually be able to borrow for up to 30 year mortgage terms
• You will usually be able to borrow at 80% LTV.
• You will usually be able to access both fixed and variable rates
• Monthly, quarterly, bi-annual or annual repayments are available which could help your cash flow.
• When looking to get agricultural mortgages, the last two years worth of accounts are usually used.
• When assessing your affordability for an agricultural mortgage the lender will usually use EBITDA (earnings before interest, tax, depreciation and amortisation)

How much can you borrow for a farm land?

The amount you will be able to borrow on an Agricultural mortgage for a farmland will heavily depend on a few factors but most agricultural mortgage lenders will provide minimum mortgages of £25,000.

The factors affecting how much you may be able to borro include:

• Your income
• Your experience 
• Your business plan
• Your credit score
• Value of the properties and land
• The size of your mortgage deposit

What mortgage deposit do you need for a mortgage on a farm land?

You will likely need a mortgage deposit of between 30% to 50% based on your own personal circumstances for a mortgage on farm land.  As mentioned above, some mortgage lenders will also accept other collateral as security for the mortgage.

What mortgage documents do you need for a mortgage on farm land?

For a mortgage on farm land, you will need the below documents as well as a business plan for the farm land.

• Your bank statements for 3 months
• Your utility bills
• Your identification documents such as your passport
• Your P60 payslips for3 months
• Your SA302 tax return if you are self-employed
• Your tax return documents
• An accountants certificate for a mortgage if you are self-employed
• Your self employed accounts if you are self-employed
• Proof of benefits if you receive benefits
• An assets and liabilities statement

Can you use your supplementary income to get a mortgage on a farm land?

Yes, you may be able to use the supplementary income to get a mortgage on farm land.

If most of your income is made up of supplementary income then you may be better-looking for a mortgage lender who accepts benefits or a mortgage lender who accepts a huge percentile of supplementary income when considering someone’s mortgage affordability.

The issue is that most mortgage lenders will limit the percentile of how much supplementary income they will attribute to your total income when considering your mortgage affordability.

Some of the benefits and supplementary income mortgage lenders may accept include:

Pension income

Investment Income

Overseas earned income

Maintenance Payments

Rental Income

Bursary

Stipend

• Attendance Allowance benefit
• Carer’s Allowance benefit
• Child Benefit
• Child Tax Credit benefit
• Disability Living Allowance (DLA)
• Incapacity Benefit (IB)
• Industrial Injuries Benefit (IIB)
• Maternity Allowance benefit
• Pension Credit benefit
• Severe Disablement Allowance
• Widow’s Pension benefit
• Working tax credit benefit

Can you get a mortgage on a farm land if you are self -employed?

Yes, you may be able to get a mortgage on farm land as a self-employed borrower but your main challenge will be proving to the mortgage lender that your income is indeed reliable.

You will need to adequately evidence the reliability of your self-employed income with all your supporting documents.

Most self-employed mortgage lenders will insist on seeing 3 years worth of self-employed accounts but may accept less than 3 but usually no less than 12 months.

The mortgage lender may then decide on how much of your self employed salary it considers reliable and include this percentile towards your total income.

You may want to consider using a self-employed mortgage broker to assist you.

When applying for a self-employed mortgage on farm land you wil usually need the below documents:

• Your CV
• Your SA302 assessment return
• Your accountants certificate for mortgage
• 3 years worth of self-employed accounts.

Can you get a mortgage on a farm land if you have bad credit?

Yes, you may be able to get a mortgage on farm land if you have bad credit but it really all depends on what type of bad credit you have and how long the bad credit has been incurred.

There are some specialist commercial mortgage lenders who will lend to you if you have bad credit but you can expect to put down a bigger mortgage deposit and expect to pay a bigger mortgage rate.

Bad credit may include:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home repossession

Things you can do to improve your bad credit:

• Get a secured credit card to show good repayment behaviour
• Get a credit builder card to show good repayment behaviour
• Get on the electoral roll at your current address
• Keep your credit accounts open as long as possible
• Avoid making too many credit applications in a short time
• Keep your credit utilization below 30%
• Avoid payday loans

Government schemes for a mortgage on a farm land

When looking to buy a home, there are a few government schemes which could reduce the price of the property or increase the size of your mortgage deposit so your mortgage affordability for the property rises.

Unfortunately, when getting a mortgage on a farm land there are a few government schemes you won’t be able to use, they include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
• Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Right to buy– allows you to buy your home at a discount price.
• Preserved right to buy– same as above.
• Right to acquire– similar to the above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

FAQs: Mortgage on a farm land

In this brief guide, we discussed getting a mortgage on farm land, what to consider when looking to get this kind of mortgage.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.