What is a Farm Mortgage?
A farm mortgage is a mortgage aimed specifically at farmers, which lets them buy a farm or raise capital to finance the development of their existing business by making improvements to their farm buildings and land.
Farm Mortgage Flexibility
Many lenders are flexible as to the exact purposes for which farmers can use their mortgage loan. In addition to building improvements, the loan might be used to buy or lease additional land, to buy machinery, livestock or additional milk quota, to buy out a business partner who wishes to retire, or to restructure and consolidate existing loans at a lower rate of interest.
Why Choose a Farm Mortgage?
Farm mortgages are available in a number of guises from specialist mortgage brokers and some high street banks. These include fixed rate and variable rate mortgages available for different length terms. Many offer the option of payment holidays or the ability to make underpayments or overpayments, depending on varying financial circumstances.
The Changing Farm Property Market
Traditionally, financial institutions have been happy to lend to farmers because many farmers were asset rich but (relatively) cash poor. For this reason, financial institutions were confident that farm mortgages would be profitable for them and that they would get their money back if the borrower were to default on the loan.
Following the increases in residential property prices, in recent years, combined with the problems that have affected the farming industry (the Common Agricultural Policy, Foot and Mouth Disease, quotas, monopolistic supermarkets, etc.), the balance between residential and agricultural property prices has shifted significantly in favour of residential property.
The values of farms in desirable areas have become more dependent on their location, closeness to amenities and communications links and less dependent on income generated directly from farming.
Farmers have been forced to diversify in order to survive. Nowadays, fewer farming families rely solely on traditional forms of farm income, so the difference between the residential and farm mortgage market is blurring. Because interest rates tend to be lower for home mortgages than for commercial mortgages, some farmers are able to borrow on the value of their house as a residence rather than as part of the overall value of the farm.
- Farm mortgages allow farmers to purchase farms and develop existing farm businesses
- Farm mortgages offer more repayment flexibility than conventional mortgages
- The differences between residential mortgages and farm mortgages are diminishing