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Farm Mortgage and Finance

Farming mortgages are a specific type of agricultural mortgage that finances the purchase of a farm or improvements to existing farm buildings or land. Farming isn’t as profitable as it once was, so farming mortgages have changed with the farming industry. Farming mortgages can also be used for buying or leasing extra land, machinery, or livestock that is needed to improve their business. In addition, farming mortgages can be used to consolidate existing farm mortgages for a better rate or buy out a retiring partner.

Farming mortgages can still benefit from the same agricultural mortgage benefits. This includes the flexibility that lenders extend to mortgages for the purpose of the business. They may offer fixed or variable rates, overpayments or underpayments, and a flexible loan term from 5 to 40 years.


Changes in the Farming Industry

            Many problems have faced the farming industry in recent years. Due to increase in giant supermarkets, Foot and Mouth disease, The Common Agricultural Policy, and quotas, the value of farming properties have decreased. The value of a farm no longer is determined solely on its generated income, but instead, is determined by the location and its closeness to communication links and amenities. Farming is no longer profitable without technology. Due to this change in the farming industry, farmers have been diversifying in order to survive.

            To keep up with the farmers, lenders have also been forced to change their tactics. To enable a farmer to qualify for a farm mortgage, lenders need to know the value of all of the items used in the business. This includes the farmhouse, surrounding farm buildings, any other residential buildings, arable land, other land, and fishing or shooting rights. All these factors can increase the value of the farm. Other factors lenders include to help raise the value of the farm are:

  • Location and lifestyle features
  • Current income generated and future prospect for generated income from the business
  • Income from building or land rental
  • Diversification potential
  • Development potential
  • Level and availability of subsidiaries
  • Pollution risk
  • Flood prevention requirements
  • Resources available for renewal energy


            On the flip side, residential property value has increased. It used to be more beneficial for farmers to apply for a farm mortgage than a residential mortgage, but now, in some cases, that is no longer true. Since interest rates tend to be lower for residential mortgages, farmers can usually borrow for their house as a separate residence not included in the value of their farm to make their farm mortgage more affordable.


Tax Reliefs

            With certain conditions being met, farm owners are eligible for inheritance tax reliefs. The farm properties eligible for these tax reliefs are farmhouses, farm buildings, and woodland or arable land used for agricultural purposes.

            There are two types of inheritance tax reliefs available to farmers:

  • Agricultural Property Relief: Designed specifically for farmers. Farmers must have owned their property for 2 years or more or rented their property to another farmer for 7 years or more.
  • Business Property Relief: Farmers are eligible for this since farming is a business.



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