Agricultural Bridging Loans

A bridging loan for a farm is short-term, property-backed finance used where a purchase or refinance must complete quickly, or where timing issues such as chain delays make longer-term finance impractical. Agricultural property is assessed differently from standard residential or commercial assets, so lender appetite, loan-to-value and the exit strategy are the three things that decide whether a farm bridging case works.

Lenders assess land use, property type, loan-to-value, marketability and the planned exit, whether by sale, refinance or longer-term agricultural finance.

Mortgage Lane arranges bridging loans for farms covering purchases, chain delays, transitional cash flow and properties requiring works before long-term finance is available, matching cases to lenders whose criteria fit agricultural assets.

Residential bridging loans for farms

On the cases we arrange, a regulated bridging loan for a residential farm purchase can run up to 80% loan-to-value. Where a case sits within that ceiling depends on the property, the valuation and the lender. The lender's focus is the exit, usually a remortgage or a sale of the property.

Where the planned exit is a remortgage, affordability on the exit is income-based. Income multiples vary by lender: in Mortgage Lane's experience 5 times income is the standard multiple, up to 6 for professionals and specialist products, and each lender's affordability assessment decides the actual figure. The bridging lender assesses the exit the way the residential mortgage lender will, reviewing:

• income sources, such as salary, dividends, rental income and other revenue;
• credit score and history of managing debt;
• regular outgoings and existing financial commitments.

That assessment gives the bridging lender confidence that the borrower can complete the exit onto the residential mortgage, and without a workable exit a bridging lender is unlikely to lend.

Hobby farms are homes with land kept for personal enjoyment or small-scale farming rather than as a business. In our experience a hobby farm can be financed on residential terms where no more than 60% of the property is in commercial use. This sits alongside the statutory test for regulated lending: a loan to an individual or trustees is a regulated mortgage contract where at least 40% of the land is used, or intended to be used, as or in connection with a dwelling by the borrower or a related person. In our experience some residential lenders will also accept a property with an agricultural tie, so a tie does not automatically push a hobby farm into commercial lending; the lender, the wording of the tie and the valuation decide each case.

Commercial bridging loans for farms

On the cases we arrange, a commercial farm bridging loan can run up to 75% loan-to-value. The exit is again a sale or a remortgage. For a remortgage exit, the lender evaluates the farm's profitability, the borrower's business experience and their financial stability, to confirm the borrower can exit onto a rural mortgage.

Underwriting on a commercial farm bridge typically covers:

• profit and loss statements, balance sheets and cash flow projections;
• a business plan setting out the farm's operations, revenue streams and growth strategy;
• the borrower's background in farm management and relevant industry experience.

Agricultural ties and other restrictions

An agricultural tie, or agricultural occupancy condition, restricts occupation of a property to people working, or last working, in agriculture or forestry. The restriction limits the pool of potential buyers, which affects marketability. A bridging lender looks closely at marketability, because the loan's security is the ability to sell.

Farm bridging options exist for properties with title restrictions. The restrictions Mortgage Lane arranges bridging against most often are:

• Agricultural ties, which restrict occupation to those employed in agriculture and usually require specialist lending.
• Easements and rights of way, which can affect the property's value and usability, and therefore the loan.
• Lender reluctance on rural property generally: some lenders avoid rural assets because of perceived location risk, market volatility, maintenance cost and limited resale potential. Mortgage Lane works with bridging lenders who understand rural property and lend flexibly against it.

Agricultural Bridging Loans: frequently asked questions