Unlocking your mortgage options: a comprehensive guide to financing rural agricultural properties in england

Unlocking Your Mortgage Options: A Comprehensive Guide to Financing Rural Agricultural Properties in England

Understanding Your Mortgage Needs for Rural Agricultural Properties

When it comes to financing a rural agricultural property in England, the process can be complex and daunting, especially for those new to the world of agricultural mortgages. However, with the right guidance, you can navigate this landscape with ease and secure the financing you need to turn your rural dreams into reality.

Types of Mortgages for Agricultural Properties

The type of mortgage you need will largely depend on how you plan to use your land. Here are the main types of mortgages you might consider:

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• Residential Mortgages: If you are purchasing a property with a small amount of land (typically up to 10 acres) and do not plan to use the land for commercial purposes, a standard residential mortgage might be sufficient. However, as the acreage increases, the number of lenders willing to offer mortgages decreases[3].

• Agricultural Mortgages: For properties where the land will be used for commercial farming, such as dairy farming or other agricultural activities, you will need an agricultural mortgage. These mortgages are specialized and often require detailed information about the land use, outbuildings, and any restrictions on the property[3].

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• Commercial Mortgages: If you plan to use the land for other commercial purposes, such as running a bed and breakfast or a campsite, you may need a commercial or semi-commercial mortgage. These mortgages are tailored to the specific use of the property and can be more complex to secure[3].

Navigating the Mortgage Application Process

Securing a mortgage for a rural agricultural property involves several steps and considerations.

Speaking to a Broker

Given the complexity of agricultural mortgages, it is highly advisable to speak to a mortgage broker who specializes in large acreage mortgages. Brokers can help you determine the right type of mortgage for your needs and guide you through the application process.

### Steps to Secure a Mortgage

- **Determine the Use of Your Land**: Clearly define how you will use your land to determine the type of mortgage you need.
- **Gather Detailed Information**: Provide full details of the living accommodation, total area of land, current and intended use of the land, details of any outbuildings, and any restrictions.
- **Choose the Right Lender**: Different lenders have different criteria for lending on properties with large acreages. For example, Saffron Mortgages may lend on properties with up to 20 acres, while Bluestone Mortgages may consider properties with up to 40 acres[3].
- **Undergo Manual Underwriting**: Many applications for large acreage mortgages will need to be referred for manual underwriting, which involves a more detailed scrutiny of your application.
- **Consider a Surveyor’s Inspection**: The property may need to be inspected by a surveyor to ensure it meets the lending criteria.

Bridging Loans: A Short-Term Financing Solution

For those who need short-term financing to bridge the gap between purchasing a new property and selling an existing one, or for development projects, bridging loans can be a valuable option.

How Bridging Loans Work

Bridging loans are fast, flexible, and can provide temporary liquidity to prevent missing out on market opportunities. Here are some key points to consider:

• Loan to Value (LTV): Bridging loans can offer up to 80% LTV for residential properties and 70% for commercial properties. In rare cases, 100% LTV bridging loans may be available[2].

• Interest Rates and Fees: Bridging loans typically have higher interest rates than traditional mortgages, with minimum interest rates starting at 0.55% per month. There are also arrangement fees, loan drawdown fees, and redemption fees to consider[2].

• Regulated vs Unregulated Loans: If the property is for personal use, it will fall under regulated lending governed by the FCA. Unregulated loans offer more flexibility but come with higher risks[2].

### Example of Bridging Loan Terms

| Item                  | Terms                                                                 |
|-----------------------|-----------------------------------------------------------------------|
| Type of Bridging Finance | Unregulated                                                         |
| Max Loan To Value     | 80% LTV Residential & 70% Commercial                                |
| UK Areas Covered      | England, Wales, Scotland & Northern Ireland                         |
| Loan Term             | 1-24 months                                                           |
| Minimum Loan Size     | £50,000                                                               |
| Maximum Loan Size     | No maximum                                                            |
| Minimum Interest      | 0.55% pm                                                              |
| Interest Treatment    | Rolled, Retained or Serviced                                        |
| Borrower Residency    | UK residents, UK ex-pats, Non UK Nationals (Limited Options For UK Property) |
| Borrower Type         | Individual, Sole Trader, LLP, Partnership, Ltd Company              |
| Security Types        | Residential, commercial & semi commercial property (1st & 2nd Charge) |

Tax Considerations for Agricultural Properties

In addition to securing the right mortgage, understanding the tax implications of owning an agricultural property is crucial.

Annual Investment Allowance (AIA)

The AIA provides a 100% deduction for the cost of plant and machinery purchased by a business, up to an annual limit of £1 million. This is particularly beneficial for farmers who need to invest in high-cost agricultural machinery and equipment[1].

Agricultural Property Relief (APR)

APR offers 100% relief from inheritance tax on the agricultural value of land and property, provided certain conditions are met. This can be invaluable for farmers and their families, especially given the increasing complexity and cost of inheritance tax[1].

Farmers’ Averaging

Farmers’ averaging is a unique tax rule that allows farmers to average their profits over 2 or 5 years to limit fluctuations in their tax bills. This can be particularly useful for managing the variability in agricultural income due to factors like weather and poor harvests[1].

Land Planning and Development Considerations

When purchasing or developing agricultural land, land planning and development regulations are critical to consider.

Changes in Permitted Development Rights

Recent changes to permitted development rights, such as those for agricultural buildings, have made projects like barn conversions more feasible. However, these projects often require bridging finance to cover the short-term funding gaps[4].

Planning Permission

Securing planning permission is a key step in any development project. This can be a complex process, and it is essential to work with experts who understand the local planning regulations and can guide you through the application process.

### Tips for Navigating Land Planning and Development

- **Consult with Experts**: Work with land agents, chartered surveyors, and planning consultants to ensure you comply with all regulations.
- **Understand Local Regulations**: Familiarize yourself with local planning policies and any specific restrictions on your land.
- **Secure Necessary Permissions**: Ensure you have all the necessary planning permissions before starting any development project.
- **Consider Bridging Finance**: Use bridging loans to fund short-term gaps in your development project.

Practical Insights and Actionable Advice

Here are some practical tips to keep in mind when financing and developing your rural agricultural property:

• Plan Ahead: Always plan your financial and development strategies well in advance. This includes understanding your tax obligations and potential reliefs.
• Seek Expert Advice: Whether it’s a mortgage broker, tax advisor, or land agent, seeking expert advice can save you time and money in the long run.
• Be Flexible: Be prepared to adapt to changes in the market and regulatory environment. For example, changes in government grants or planning permissions can impact your project.
• Consider All Costs: When calculating the cost of your project, include all associated fees such as arrangement fees for bridging loans, stamp duty, and other expenses.

Financing a rural agricultural property in England involves a multitude of considerations, from choosing the right type of mortgage to understanding tax reliefs and land planning regulations. By taking the time to understand your options and seeking the right advice, you can unlock the full potential of your rural property and ensure a successful and sustainable agricultural business.

As Pete Mugleston, CeMAP Mortgage Advisor, notes, “Many people dream of buying a rural property with a large acreage of land. However, the more acres of land a property has, the fewer lenders you’ll have to choose from. Working with an expert broker can significantly increase your chances of securing the right mortgage for your needs.”[3]

In conclusion, whether you are purchasing land for residential use, commercial farming, or development projects, a thorough understanding of your mortgage options, tax considerations, and land planning regulations is essential. By being well-informed and prepared, you can navigate the complexities of rural property finance with confidence.