More and more Australians are opting for a ‘green change’ and are heading into the countryside to live on the land. Although living on a small farm or lifestyle block can be an exciting change, they- can be difficult to finance.
The majority of lenders do not lend for properties that are over 10 hectares (25 acres) in size. So how can you finance the purchase of a larger hobby farm?
How much can you borrow?
- Land size up to 10 ha: You can borrow up to 95% of the property value.
- Land size up to 50 ha: You can borrow up to 95% of the property value.
- Land size up to 60 ha: You can borrow up to 80% of the property value.
- Land size up to 100 ha: You can borrow up to 70% of the property value on a case by case basis.
- Land size over 100 ha: These farms may not be considered as “hobby farms” by the banks. Please discuss your situation with us if you believe your property is not “income producing” (see below definition).
- Commercial farms: Larger agricultural businesses are very difficult to finance, and often loans are limited to a maximum of 60% of the land value. Please discuss your situation with our mortgage brokers.
- Discounts: Competitive professional package and basic loan discounts are available for blocks that are up to 60 ha in size.
The main problem banks have with financing a hobby farm is to do with the improvements to the farm and what the farm is used for. Please read below for more information.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will let you know which lenders will accept your hobby farm.
Hobby farm or commercial farm?
The main question that the banks will ask us is if the farm is a commercial farm or a hobby farm. For example one of our banks has the following policy:
“The use of the property is solely for the purpose of private residential occupation, including private residential occupation by a tenant, (i.e. must not be used for commercial income producing purposes or as a short term speculative investment or development).
In some cases, the land may be used for the growing of crops and/or the holding of limited stock, however this is only for the purposes of the private use and enjoyment of the owners. Income may be earned through the renting of the property to a tenant. (i.e. rental property investment).
Note: Any valuation obtained must be based on the land and residence value only. The valuation must not include income producing potential of the land, sheds, machinery, orchards, livestock, etc, which are used for income producing purposes.”
As you can see the banks are more interested in approving home loans for smaller lifestyle properties, not to a farm with a farm business. Commercial farms can apply for a commercial loan or agricultural loan instead of a home loan.
What do the banks assess?
Hobby farms can be assessed in several ways by our banks, depending on the location and the size of the property.
Land size: There is technically no maximum land size. However, to qualify with most banks the land must be less than 10ha. Some banks can consider 50ha and one can consider any size land as long as the property is not a commercial farm.
Banks are likely to be very conservative with properties over 200 hectares.
Location: Each lender has their own postcode restrictions. At least two of our lenders have no postcode restrictions, however remote properties will always be difficult to finance.
Access: The land must have easy access using an all weather road. Dirt roads are fine as long as they are well maintained.
Services: The land must be within range to be connected to the electricity grid without excessive costs. Town water and sewerage services are not required as many Australian properties have tank water or septic tanks instead. Fully serviced and partially serviced blocks are both acceptable.
Zoning: Land can be zoned rural, rural residential or the equivalent for your state. Be careful with land that is zoned industrial, commercial or for farm use as they are generally not accepted or may be considered as a commercial farm. A good rule of thumb is that if the land you are buying is subject to GST, then it would be considered as a commercial property by the banks.
Land use: The land should be used for personal or investment purposes, not as a farm. Hobby farms with minor farm improvements and no income from farm production are usually accepted.
Why are the banks so conservative?
During times of drought or during economic downturns, farms tends to fall in value and take longer to sell. This is particularly true in country areas and remote locations where land prices fluctuate more often. Normal houses on the other hand have more potential buyers and so tend to sell much faster.
Because of this higher volatility banks tend to be more conservative when approving a home loan for hobby farms. In addition to this banks consider commercial farms to be businesses, not a lifestyle purchase, and for this reason they can only be considered for more expensive commercial loans & business loans.
Apply for a mortgage
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers who specialises in hobby farms can help you to apply for a home loan.