Rural Mortgage
Case Studies
Case Study #1
As Featured in Farming Life
Magazine - Specialist adivce to buy Surrey Farm |
Case Study #2
Holiday Cottage enterprise becomes
reality |
Case Study #3
Successful first year for Kent
Riding School |
Specialist
advice proved invaluable for tenants of a Surrey farm when
they decided to buy the property
 For
farmer Malcolm Mott, the opportunity to buy the farm he had
rented and formerly managed for 15 years was one he could
not afford to miss. But the route to closing the deal was
not without its difficulties, and specialist guidance and
assistance was critical to sealing it.
Malcolm, from Fickleshole near Addington,
in Surrey, farms 184-hectare Fairchildes Farm with his wife,
Yvonne and daughter, Toni. Having previously managed the farm
for the former tenant, the Motts obtained the tenancy of Fairchildes
in 1990 from the London Borough of Croydon. In addition to
developing the farm’s arable enterprise they have since
developed a livery yard and let land for a professional clay
shoot and to a model aeroplane club
 In
late 2004, the borough council told the family of its decision
to sell all of its farms, including Fairchildes. Despite the
Motts’ tenancy being secure, with two successions still
allowable on the agreement they had signed, the family were
keen to try to purchase their home and farm. “We didn’t
want to lose the work we’d put in here,” says
Malcolm, “and as the chance to buy would probably never
come up again we decided to make an offer. “Finding
the right mortgage for a farm property wasn”t easy,
though, so we enlisted the help of rural property mortgage
consultants Rural and Business Specialists Ltd (R&BS).
Expert help
"We needed someone who understood the
issues concerned with buying a farm, as these can be difficult
for some businesses to handle, and R&BS fitted the bill."
Responding to the Motts’ requirements,Rob
Lister of R&BS supplied the couple with several detailed
options that would enable them to put together a viable bid
for the farm.
This process consisted of collating all their
financial information, producing a cash-flow forecast, and,
most importantly, understanding the needs of Malcolm and his
family, while making them an attractive proposition to a potential
lender. “To provide a business with a mortgage, a lender
needs evidence of three things,” says Rob Lister. “The
customer must have a good financial track record, a financially
viable business, and sufficient security for the lender to
consider the proposition.” The three options that Rob
presented to the Motts were: first, their own bank’s
offer, which required a relative’s house as security;
the second asked for no added security, but required the Motts
to move all their personal banking and investments to that
bank; and the third, most preferable option, a stand alone
mortgage that allowed them to keep their personal finances
separate and which required no extra security.
“It was essential to the Motts that
we kept their personal banking separate from the mortgage,”
explains Rob. “This is certainly our preferred method,
as it spreads the risk to the client, meaning they don’t
have all their finances tied up with one lender, and in the
current agricultural climate that is even more important.”
Tailor-made solution
 The
solution the Motts decided on was a tailor-made product put
together for them by R&BS, whereby they would pay interest
only on a 25-year mortgage for one year, changing to a repayment
option at the end of that first year. “We were offered
two three-bedroom cottages which were part of the farm when
rented, though not needed for farm workers,” explains
Malcolm. “They were let to outside tenants on short
hold tenancies by our previous landlords. On Rob’s advice,
we purchased them on a separate loan from the main farm mortgage,
and they have now been renovated and are being sold off again
with some additional land to boost their value.”
Selling the two cottages off will reduce the
mortgage dramatically, thus enabling the swap from interest
only to repayment. This was done through an agreement with
the lender that incurred no penalty within a designated time
frame. The tailor-made solution also included a balanced payments
scheme. This means the repayment amount would be fixed for
cash-flow purposes over the term of the loan, although the
interest rate would be variable. The lender would adjust the
period depending upon changes to the base rate during the
course of the agreement. If the base rate averaged more than
4.5%, the term would be extended; if it averaged less than
4.5%, the term would be reduced and the Motts would pay off
the loan quicker.
Auction process
Under council rules, the farm still had to
be placed on the open market and be subject to a private auction
of sealed bids. “So, even though we had the mortgage
details finalised and had put in our offer, there was still
some way to go,” says Malcolm. There followed a long
wait to discover whether theirs had been the highest offer,
and in early December 2004 the family were eventually informed
they had not put up the best bid, and awaited the arrival
of new landlords. “But in early March the council contacted
us to ask if we would resubmit, as the original winning bidder
had pulled out at a late stage,” says Malcolm. “The
only problem was that they wanted to complete in 14 days,
before the end of their financial year on the 1st of April,
so the sale could be included in that year’s budget.”
Malcolm quickly enlisted his solicitor and
land agent, while instructing Rob Lister to secure the proposed
mortgage. “The sale was for a 999-year lease, with no
ground rent payable. We had some issues with the lease terms
that required some negotiating between our land agent and
the council. Given the timescale the council wanted us to
work to, this put everything under great pressure.”
Rob adds: “A farm purchase can take up to three to four
months, so completing the sale of this farm in 14 days was
a massive feat of organisation. On the Motts’ behalf
we co-ordinated all the work, thereby ensuring it was all
done within the specified time-scale.”
Down to the wire
The purchase was finally completed at 2.45pm
on the 31st of March – less than half a day before the
council deadline, and, says Malcolm, the nail-biting time
leading up to completion was “very difficult”.
Mindful of the value of potential building land on the urban
fringe, the borough council placed a 30-year ‘uplift’
clause in the farm sale conditions, whereby 50% of the value
of any land sold for development during that period would
be payable to them. But Malcolm rules out any such sales for
the foreseeable future.
 While
the 25-year mortgage takes him well past normal retirement
age, Malcolm is happy to have made the move to secure the
farm and the family’s future, particularly as the farm
freehold value is now probably three times that of the mortgage.
With the farm now theirs, the Motts and tractor driver Tony
Edwards have also been able to refocus their attention back
onto the farm and their other businesses, including the livery
developed by Yvonne Mott, which now hosts up to 40 horses.They
profit further from the local equine industry by renting a
building to a farrier.
Malcolm explains that a key reason for developing
the livery business was problems with sustaining a beef cattle
enterprise on the urban fringe, such as litter, open gates,
trespassers and “manure issues”. “For those
reasons, we stopped farming cattle, but we still face other
urban problems, such as fly-tipping,” says Malcolm.
“Farming close to the urban fringe also has many benefits,
though, and we are surrounded by some beautiful countryside.
That’s one of the reasons why it was
so important to us to secure our future at Fairchildes. “We
were lucky that the initial high bidder decided to pull out,
even though it did mean rushing things through,” Malcolm
concludes. “Without all the professional help and guidance
we received it would have been very complicated – and
we still might not have succeeded.”
If you would like to know how R&BS Ltd
could help you fulfil your Rural Property dreams, please contact
us
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