Will banks approve my loan to buy a land in the countryside?

Any general questions you might have in regards to loans and finance.
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elon
Posts: 41
Joined: Thu Jun 27, 2013 9:16 pm

Will banks approve my loan to buy a land in the countryside?

Post by elon »

Hi brokers, I am thinking of buying a piece of land which I want to use as a personal farm. I haven’t chosen an exact area but I would like it to be somewhere in the countryside. So before I choose a specific land, I just wanted to make sure what requirements do banks have for giving loan for such purpose. Will banks approve a loan to buy a land which is going to be used for farming purpose?

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Otto Dargan
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Re: Will banks approve my loan to buy a land in the countrys

Post by Otto Dargan »

Hi and welcome to the forums elon,

If you want to buy a piece of land in the countryside then you can apply for a hobby farm loan. Lenders may have specific requirements regarding the land and the applications may mostly be assessed according to the location and the size of the property.

The criteria to be eligible for this kind of loan are:
  • Land size: Technically there is no maximum land size however most lenders will approve loan for land which are less than 10ha. Some may consider 50ha and there is one lender who can consider any size of land as long as the property will not be used for a commercial purpose. Almost all lenders are generally stricter for a farm size over 200 hectares.
  • Location: If the farm is located in a remote area then it may be more difficult to finance. However each lender can have their own postcode restrictions. The good news is that we know at least two lenders who do not have this restriction.
  • Access: The land should be easily accessible. For example, it should have well-maintained roads.
  • Services: The land must be within range so that it can be connected to the electricity grid without excessive costs. Since most Australian properties have tank water or septic tanks, town water and sewerage services may not be necessary. Fully serviced and partially serviced blocks are both acceptable.
  • Zoning: Land may be zoned as rural, rural residential or equivalent for the state you are buying in. If the land is zoned as industrial, commercial or for farm use then it may not be accepted or it may be considered as a commercial farm. If the land you are buying is subject to Goods and services Tax (GST) then it would be considered as a commercial property by the lenders.
  • Land use: The land should be used for personal or investment purposes. Hobby farms with minor farm improvements and no income from farm production may be accepted.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

elon
Posts: 41
Joined: Thu Jun 27, 2013 9:16 pm

Re: Will banks approve my loan to buy a land in the countrys

Post by elon »

Hmm...I didn’t know so many things had to be considered while buying a piece of land. Well, if I meet the above criteria then how much could I borrow?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Will banks approve my loan to buy a land in the countrys

Post by Otto Dargan »

Hi elon,

The percentage of the property value you can borrow usually depends on the location and size of the property.

The LVR you may be able to borrow are:
  • Up to 95% of the property value if size of the land is up to 10 ha.
  • Up to 95% of the property value if size of the land is up to 50 ha.
  • Up to 80% of the property value if size of the land is up to 60 ha.
  • Up to 70% of the property value on a case by case basis if size of the land is up to 100 ha.
  • You will be limited to borrow a maximum of 60% of the land value if the loan is for commercial farm. Please note that if the size of the land is over 100 ha then the farm may not be considered as hobby farms by the lenders.
Competitive professional package and basic loan discounts are available for blocks that are up to 60 ha in size.

If you want to know more about hobby farm loan then you can call us directly on 1300 889 743. You can also fill in our free assessment form to see whether you can qualify for a loan or not.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

elon
Posts: 41
Joined: Thu Jun 27, 2013 9:16 pm

Re: Will banks approve my loan to buy a land in the countrys

Post by elon »

Well, like I said I haven’t exactly chosen a land but I will call you up when I have chosen one. Thanks so much for your help :)

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HelloKitty
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Joined: Mon Jul 15, 2013 1:00 pm

Re: Will banks approve my loan to buy a land in the countrys

Post by HelloKitty »

Hi Otto, I was also thinking of buying a land in a few months. I have even chosen the area and everything. But I am a bit worried about the postcode restriction. Which areas are generally considered as highly restricted by the banks?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Will banks approve my loan to buy a land in the countrys

Post by Otto Dargan »

Hi HelloKitty,

There are typically five categories for each postcode in Australia:
  • Category 1: Metro areas, capital cities in each state and major regional centres with a large population are generally considered to be low risk.
  • Category 2: Medium sized regional centres are considered to be low to medium risk.
  • Category 3: Smaller towns with fluctuating property markets are considered to be medium to high risk.
  • No Category / National Locations: All other postcodes that are not included in the above categories are considered to be a very high risk.
  • High Density: Inner city suburbs or areas with high rise residential buildings and high density units in these areas are considered to be very high risk.
Please note that a particular area or postcode may have different classifications for different lenders depending on their interpretation of the property market in that area.

You can use our Postcode Calculator to find out if the location of your property will be viewed as a high risk by the lenders.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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HelloKitty
Posts: 31
Joined: Mon Jul 15, 2013 1:00 pm

Re: Will banks approve my loan to buy a land in the countrys

Post by HelloKitty »

I think the land I am planning to buy comes under Category 2. I will try out the calculator and give you a call to see if any lender will approve my loan.

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