Is it possible to get a mortgage on a property with agricultural restrictions?

by Aaron Strutt

Sep 01 2023

Getting a mortgage on properties with agricultural restrictions is possible, but the choice of lenders is often reduced.

Agricultural mortgage restrictions refer to limitations or conditions imposed on properties with agricultural land or related activities. These restrictions are typically designed to reduce property use, often leaving buyers with questions about securing mortgages.

One large bank can potentially lend on properties with a Section 106 restrictive covenant.
These are intended to regulate the development or proposed use of the property. Other medium size lenders can also consider these applications. Another bank accepts these applicants, but the maximum plot size is usually between four hectares or ten acres, and there should be no evidence of tenancy or commercial activity.

Agricultural restrictions are often varied but may include limiting the occupation to a specific category so the properties can only be sold to local residents, first-time buyers, people of certain ages and established employment types. They also restrict the use of the property - such as tied to agricultural use. Some restrict residential occupations to certain time limits, for example, ten months of the year.

Can smaller lenders offer agricultural restriction mortgages?

Smaller lenders, like Buckingham Building Society, Stafford Railway Building Society and Swansea Building Society, can provide mortgages on properties with agricultural ties. Still, they tend to have higher rates and varying lending policies.

Valuations may be lower than open market sales, although agricultural restrictions will be considered on their merits, and some borrowers will need larger deposits to qualify. 

One regional building society regularly receives applications for mortgages on properties with agricultural restrictions, and they can be accepted subject to borrowers having a 50% deposit. 

Can private banks offer agricultural restriction mortgages?

One private bank recently agreed terms for one of our clients, subject to an agricultural occupancy restriction. It said: “The dwelling shall be occupied only by persons employed locally in
agriculture as defined in Section 119(1) of the Town and Country Planning Act, 1947, or (subject to the consent of the Local Planning Authority) by the dependents of such persons.”

Aaron Strutt, product director at Trinity Financial, says: "The impact on acceptability depends on the restriction. There may be a strong local demand for the property from qualifying purchasers.

"The property valuer will determine the property's suitability for lending, and the conveyancer will determine whether the purchaser/owner complies with the obligation, advising the lender if any issues may impact the lending.

"Where the restriction limits the time a property can be occupied, it may only be accepted for holiday homes/second home loans and subject to the valuer confirming the property is suitable for lending."

It is essential for borrowers to thoroughly review and understand the terms and restrictions before entering into an agreement. These restrictions can vary significantly, so borrowers should seek legal and financial advice to ensure they can meet the obligations and restrictions associated with the loan.

Some common agricultural restrictions and mortgage lender issues include:

• Land Use Restrictions: Lenders may specify how the farmland can be used, such as for farming, ranching, or forestry. Borrowers may be prohibited from using the land for non-agricultural purposes, like residential or commercial development.
• Agricultural Activities: Lenders may require the land to be actively used for agriculture. Borrowers might need to meet specific agricultural production requirements to maintain the mortgage.
• Property Maintenance: Borrowers may be obligated to maintain the property and keep it in good condition to ensure its long-term productivity. This includes caring for soil quality, preventing erosion, and supporting structures or equipment on the land.
• Environmental Regulations: Agricultural mortgages often include clauses related to adherence to environmental regulations. Borrowers may be required to follow sustainable and environmentally responsible practices on the land.
• Insurance Requirements: Borrowers may be required to have adequate insurance coverage for the property, crops, and equipment, which helps protect both the borrower and the lender in case of unforeseen events like natural disasters or accidents.

Which mortgages are available?

Repayment Terms: The repayment terms, including fixed and tracker interest rates, interest only and capital repayment, will vary depending on the lender and the borrower's creditworthiness.

Inspection and Reporting: Lenders may have the right to inspect the property periodically to ensure that the borrower meets the mortgage conditions. Borrowers may also be required to provide regular reports on agricultural activities and financial performance.

Conversion Restrictions: Sometimes, borrowers may be restricted from converting agricultural land into non-agricultural use without the lender's approval. This helps prevent the loss of agricultural land to other purposes.

Default Consequences: Agricultural mortgage agreements typically outline the consequences of default, which may include foreclosure and the potential sale of the property to recover the outstanding debt.

Call Trinity Financial on 020 7016 0790 to secure a mortgage or book a consultation 

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

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