Get to Know More About Farm Mortgages in the UK

A farm mortgage loan is a loan that is based on the guarantee of a mortgage on one or more properties owned by the borrower, specifically for agriculture or farm properties.

This type of loan, therefore, involves “pawning” real estate: if you are no longer able to repay the loan, the lending institution may be required to seize and sell the mortgaged property.

The mortgage is lifted at the end of the contract, once the loan is repaid.

The difference with bank guarantee

Mortgage credit is guaranteed, as its name suggests, by a mortgage established on one or more real estate assets. There are other guarantees to protect a loan, such as a bank guarantee or the privilege of the lender of money (PPD).

The most classic form of bank guarantee is that provided by surety companies:

• In return for a certain sum, these companies undertake to repay the loan for you if you are no longer able to do so.
• The cost of this bond varies according to the organization you are using, the amount borrowed, the amount of the monthly payments, and the profile of the borrower (age, professional situation, etc.).
• It is generally the bank that puts you in touch with these organizations specializing in surety bonds.
• At the end of the repayment of your loan, the sums paid corresponding to the cost of the deposit can be returned to you in part.

The money lender privilege (PPD) is a guarantee used on real estate loans, providing security to the lending institution to be reimbursed in priority in the event of seizure and sale of the real estate.

More about mortgage credit

The mortgage loan is aimed at both individuals and professionals, the only condition being to own at least one property. Its use meets various needs: the rapid need for cash, the desire to invest funds, etc.

Advantages

The mortgage loan has several advantages for the borrower:

• It allows you to rely on your real estate assets to have cash.
• Cash Advance is unaffected: you can use it as you see fit in most cases.
• The repayment periods are long: between 20 and 25 years on average and up to 30 years.

Limits and risks

It should not be forgotten that a mortgage loan also has some weak points:

• The cost of the loan: in addition to the application fees that can be found on all types of loans, it will also be necessary to provide for the payment of the land registration tax, the emoluments of the notary, as well as the costs of formalities.
• The risk of seizure: in the event of default on your part, the lending institution may sell the mortgaged property to cover the repayment of the loan.

What types of property to mortgage?

To be able to mortgage a property, you must be the owner. Otherwise, the conditions are quite flexible:

• The property can be your main or secondary residence, a rental investment, etc.
• The property can be new or old.
• The property must be for residential use, or possibly for mixed-use (residential and professional).
• The mortgaged real estate must belong to the borrower in its own name, but can also be held by an SCI when it is the borrower.

Borrowing rate

The rate of a mortgage loan can be:

• fixed: it will remain the same for the duration of the contract;
• variable: it will then be able to evolve during the life of the loan, depending on what has been defined in the contract.

In general, the higher the amount borrowed, the lower the rate will be.

Duration

The term of the mortgage loan is adapted to the borrower’s needs, debt ratio, and repayment capacity. It can be from 1-25 years. The mortgage ends at the same time as the credit.

Relaxation of farm mortgages rules

The Bank of England has announced the relaxation of mortgage eligibility criteria. The affordability test for taking out a mortgage will now require the borrower to prove their ability to afford a 1% increase in the variable interest rate over the repayment period, instead of the existing 3% threshold. 

This is good news for ex-pats looking to buy property in the UK, especially for first-time buyers who only have a small deposit.

“The stress test” created after the 2008 crisis is removed 

Now, to deal with the financial exodus triggered by Brexit, the UK is looking to boost investment, and the move to make mortgages more accessible is part of the new strategy. 

The relaxation of mortgage rules has the effect of reducing to £850 (∼1000 USD) per month the monthly repayment of a borrower who would normally have had to repay £1,419 (∼1800 USD) in 2021 (figures from EIN Presswire). 

As a result, a buyer can now afford a higher mortgage of £49,000 (∼$59,000) in the London area, where real estate is more expensive, and £28,000 (∼$34,000) outside. of the capital.

Minimizing the risks associated with the relaxation of mortgage rules

Easing mortgage rules of course carries risks of over-lending and over-indebtedness. However, other rules are not changed as such to minimize these risks. 

The loan-to-income ratio for taking out a mortgage has not changed. The amount borrowed is still capped at 4.5 times the borrower’s annual income. 

In recent years, the recovery of the real estate market has been rather timid. Consequently, some banking establishments want to be cautious in the face of a future prospect where house prices could stagnate or even decline. 

Also, during the pandemic, people have struggled to save money. It is therefore unlikely that they will be able to afford to make substantial deposits, even with the relaxation of the rules. 

So while buyers can take out slightly larger mortgages, they won’t be any less difficult to pay off.

Expats are likely to benefit more than local residents

Expats stand to benefit the most from this relaxation of the rules compared to local buyers, for several reasons. 

• First, they generally pay less tax, ex-pats can afford larger deposits. 
• Second, ex-pats generally tend to earn more than locals. This phenomenon is partly explained by the fact that people often settle in countries where their skills are scarce and therefore better paid. 

This financial advantage makes it easier for ex-pats, whether they are Brits in other countries or ex-pats living in the UK, to pay a higher property deposit.

The farm Mortgage lets you grow your farm business. You can use your farm mortgage loan to finance the purchase of land and buildings, the construction or improvement of farm buildings or structures, and the restructuring of farm loans.

It would also be beneficial for you to take advice from Agriculture Mortgages and he will also get you lenders and the best loan deals.