The changes to permitted development rights for agricultural buildings come into force on 6 April 2018. They will allow farmers to:
- develop existing larger agricultural buildings into up to 5 new homes; and
- increase in the size of new agricultural buildings on larger farms from 465 square metres to 1,000 square metres.
Both measures present significant opportunities to farmers to generate new income streams from old buildings, and to improve their farming practices by expanding new buildings.
Undoubtedly, many farmers will already be planning to take advantage of these changes and will be consulting their land agents, rural property planners and other professional advisers. Some farmers will need finance to complete any development projects and there will be different finance options for farmers depending on their circumstances and long-term plans.
The different farming scenarios and their finance options
Farmer A – has a strong relationship with their existing bank.
If you have a good long-term relationship with your bank and bank manager, then your existing bank may be an option for you. But you need to trust that their terms will be competitive and if you have borrowed on regular or recent occasions that you were happy that their internal processes worked well for you. Beware your plans for the developments fit your banks policy and criteria. Developing properties to let may change the proportion of your income streams and the bank could move you into a commercial department rather than agricultural bank manager, should your non-agricultural income increase.
Farmer B - wants a competitive bank offer.
If you want a competitive bank offer, and one which suits your current and future business plans, approaching several high street lenders for competitive offers could be the best option. Having a mortgage consultant on your side to approach the whole market place and find you the most suitable package, rates and terms in the marketplace is a good solution. They will also work with your bank manager, bank lending teams and other professional advisers to make the process as simple for you as possible. Although moving banks may present higher security and valuation fees, the overall benefits and assistance provided from a consultant in terms of reduced time and hassle throughout the process may compensate for this.
Farmer C - wants flexibility and doesn’t want to or can’t fit into high street banks’ lending criteria.
Those farmers who don’t fit into the high street’s more regulated bank processes and needing to borrow more than £250,000 and with assets of £2 million could consider a private bank. Today private banks have a more subjective view on serviceability and have less formal internal processes; for example some private banks may not require a valuation. Of importance for clients with a more complicated long-term strategy for the developments (for example, renting out some, selling others and then using the funds to build a new farm building) a private bank option could provide this greater flexibility without the added needed for further paperwork and costs as may be required from a high street bank.
Farmer D - looking to quickly develop properties, with the aim of selling them on completion to reduce the long-term farm debt levels.
An alternative lender could offer a medium to shorter-term loan and may suit these situations. The market has become more competitive and the number of lenders has increased. This has resulted in rates moving much closer to high street rated than in the past.
Remember to plan ahead and work closely with your advisers
Depending on the lender, loan applications with high street banks can take up to three to four months to complete. Private banks and alternative lenders tend to be shorter and can take around one month to complete. Nonetheless, it is vital that finance is planned at the start of the project and in good time.
Working with all your professional advisers to get firm project and building plans in place is crucial. Your bank or lender must have the reassurance that it not only has all the right information in support of your loan application but also that the development project will completed to appropriate professional standards.
How we can help
The team at R&BS work closely with farmers and their professional advisers such as land agents, planning consultants and accountants to source mortgage finance. Our specialist approach brings several benefits to both our clients and their advisers. We take the time to complete the bespoke finance applications in a way we know will appeal to lenders and we know which lenders to approach for the different client situations. Our independent access to a wide range of different lenders ultimately gives clients more choice on rates and terms.