Is it possible to secure a Farmhouse Mortgage on a property with Large Acreage?

by Aaron Strutt

Aug 01 2024

Getting a mortgage on a farmhouse can be challenging, but there are lenders providing funding for rural properties with lots of land. 

Many of the larger mortgage lenders have issues with rural properties, especially those with land in remote locations, grazing animals, or holiday lets on the grounds. Properties with outbuildings bigger than the main house can also cause problems. 

Farmhouses often need refurbishment and may not meet the lender's basic criteria for being habitable. Restrictive covenants specifying what a property can be used for or who can buy it can also cause issues.

Aaron Strutt, product director at Trinity Financial, says: "If you are planning to buy a farmhouse, most high-street lenders will decline applications if there is any commercial element. They can also have issues if public footpaths go through the land or with derelict outbuildings.

"Our brokers have built up a list of large and smaller lenders plus regional building societies keen to issue farmhouse mortgages; we also have access to one particularly good private bank accepting unusual properties even if they have commercial elements. 

"In many cases, the decision to issue a mortgage will come down to the property valuation, and the valuers report whether the farmhouse is suitable for a mortgage. If you plan to spend over £1 million on a farmhouse with agricultural ties, we have access to more private banks that issue bespoke mortgages."  

Here are some key challenges you might face getting a farmhouse mortgage:

1. Property Use

• Mixed-use properties: Farmhouses are often on land used for agricultural purposes, which may mean the property is classified as mixed-use (residential and agricultural). Some lenders may hesitate to offer standard home loans for properties that are not purely residential. 

2. Lots of land and large acreage

• Financing large plots: Many lenders might see it as a higher risk if the farmhouse is located on a large plot of land (e.g., more than 10 acres). Banks and building societies typically prefer lending on smaller plots, and they are not keen on larger properties with commercial or agricultural ventures.
• Appraisal challenge: If the land is highly valued but the house itself is modest, it might not meet a lender’s loan-to-value (LTV) requirements. Some lenders will cap the land they will include for mortgage purposes. For example, a property with 30 acres a bank or building society may only use 10 for valuation purposes.

3. Income from the Property

• Agricultural income: If part of the property's income comes from farming activities, it can complicate the mortgage process. Lenders may want to see consistent farm income over several years, which can be difficult for farmers, given the seasonal and fluctuating nature of farm revenues.
• Non-residential use: If you plan to use the farmhouse as part of a business, such as renting out land or farming, some lenders may classify it as a commercial property, requiring a different type of loan with stricter terms.

4. Loan Types and Limited Lender Options

• Specialised loan products: Farmhouse properties with working farms often require specific mortgages. These loans have more stringent qualification criteria, and not all lenders offer them.
• Limited number of lenders: Not all lenders are familiar with farm properties, which can limit your mortgage options. You may need to seek out a lender with experience in rural or agricultural lending.
• The bigger the lender, the lower the rates: This is why it often makes sense to approach the biggest lenders first and then source mortgages with niche providers and smaller building societies. 

5. Property Condition 

• Older properties: Farmhouses are often older, and their condition can impact loan eligibility. If the home needs significant repairs, it may not meet the requirements for a conventional mortgage. Lenders could require you to address these issues before closing, or you may need to seek a renovation loan, which can add to the complexity and cost.
• Utilities and infrastructure: Many rural farmhouses have limited access to public utilities (e.g., no municipal water or sewer systems). Lenders may be concerned about infrastructure availability, which could make the property harder to sell in the future.

6. Deposit Requirements for a country home

• Higher down payment: Farmhouse mortgages often require higher down payment requirements, especially if the lender sees the property as more risky due to its size, use, or condition. You might be required to put down as much as 30%–40% compared to the 10–20% for a traditional mortgage.

7. Income and Credit Requirements

• Stable income: Lenders will want to see that you have stable, predictable income, which can be tricky if the farmhouse is part of a working farm. However, more of the farmhouse mortgages we arrange are for private buyers planning to keep the land for their use. They are employed or self-employed and work as professionals in London.
• Credit score: If you're applying for a specialised loan, such as a USDA rural development loan, you’ll still need to meet specific credit score requirements. A higher score may be necessary for certain loan types due to the perceived risk of lending for farm properties.

8. Insurance Requirements

• Farm insurance: A farmhouse may require both homeowners insurance and farm insurance. This can complicate the mortgage process, as lenders will want to ensure you have adequate coverage for the residential and farming properties.
• Rural risks: Properties in rural areas may face risks like flooding, fire, or other natural disasters that can raise insurance costs and affect lender approval.

9. Marketability of rural homes and farmhouses

• Resale concerns: Lenders are concerned about the property’s resale potential in case of repossession. Rural farmhouses can be harder to sell, which makes lenders more cautious, which can result in higher interest rates or stricter loan terms.

Summary

• Lender limitations: Not all lenders are willing or equipped to handle farmhouse mortgages. But there are options.
• Income fluctuation: If farming activities contribute to your income, it could complicate your qualification for a mortgage.
• Smaller building societies keen to lend: If a mortgage application is declined by a large bank, it is worth remembering that building societies are keen to issue mortgages on unusual properties.

Proper planning, thorough research, and possibly working with a lender experienced in rural properties can help overcome these challenges.

Call Trinity Financial on 020 7016 0790 to secure a farmhouse mortgage, book a consultation, or complete our mortgage questionnaire. 

The information contained within was correct at the time of publication but is subject to change.

Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments on your mortgage