Commercial Property: Agricultural Land and Buildings

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Commercial Property: Agricultural Land and Buildings

Like most commercial lending, how easy it will be to borrow money to buy farmland or agricultural buildings will depend on the size of the deposit available, and how in demand the property or land is. Lenders will usually want to see at least a 30% deposit. The larger the deposit, the lower the risk the lender has to bear, which means they should be able to offer a more competitive rate.

It usually makes sense to borrow as much as much as possible because income gained from the land can offset against tax. However, just how good an investment the land or property will be will depend on whether the intention is to use the it as a primary residence and business or not.

If the purchase is not intended to be a working commercial enterprise, then it may even be a good idea to attempt to get a residential mortgage on the property, which is likely to be cheaper thanks to more competitive loan rates.

However, after the Second World War, many rural properties were given planning permission on the condition that they were subject to an Agricultural Planning Restriction. This covenant stipulates that the property must be occupied by those involved in agriculture or horticulture within 30 miles of the property, or be retired from these occupations, or that the land attached to the property provides their main source of income. However, it may be possible to submit an application for a covenanted restriction to be lifted or modified, either through the courts or the local planning authorities.

Alternatively, if the intention is to buy agricultural land or buildings as a business with a commercial mortgage, interest rates are likely to be between 1% and 3% above the Bank of England base rate (more expensive than a residential mortgage). If the land is currently tenanted, then this may affect the viability of the mortgage. Land with vacant possession is likely to be more valuable.

A lender is also likely to need to see a business plan for the potential earning power of the business particularly in the case of nurseries or garden centre type operations which can be more important than the LTV (loan to value) ratio.

If you are looking to borrow money for any type of property for any purpose, please complete a Mortgage Enquiry Form and we will arrange for one of our specialist mortgage advisers to contact you. Alternatively, you can call us on 0845 108 0505.