One of Britain’s largest equity release firms has reported that the market hit a new record in 2016, after a fifth year of growth, with retired homeowners withdrawing over £2.1 billion of property wealth last year via some 27,600 plans. Clearly, the market for traditional equity release on residential property is booming, however when it comes to farms and the agricultural sector is this repeated? Searching the web suggests nothing is available and we find several instances of farming forums asking where to find equity release.
In this blog, we’re not looking at the pros and cons of equity release, which is a complex question that depends on personal circumstances and really requires good quality independent advice. More fundamental is whether there are any solutions available to farmers when it comes to equity release? Simple residential property has plenty of providers and if you need a loan on 52 Festive Road, this is an easy product to provide. However, farms by their very nature are more challenging, with a mix of residential (farmhouse) and commercial (farm and farmhouse). From a value perspective, the land in most cases greatly exceeds the principal residence, but the residence is intricately tied to the commercial structure.
Assuming you could (or should) split the title, then you have a residential property (probably) capable of accessing the conventional equity release market, albeit with rates around normal commercial borrowing levels. Nonetheless, from a loan to value perspective the residential element of a farm is often small compared to the whole farm, meaning the actual capital available is limited by the value of the residence alone.
Adding to the challenge is the fact that conventional lenders won’t offer equity release on assets that are used to operate a commercial business (i.e. your farm). As a result, we’ve seen farmers with a small mortgage with the bank that reach the age of 70 (or earlier in some cases), and this triggers a letter from the bank asking for its money back. Money back not because they’ve been a poor customer, or failed to service the mortgage, but just because the banks don’t want to lend to anyone over 70. This is not a hard and fast rule, but is something increasingly seen in the market.
So what are the options?
- See if the bank will extend its loan based on the whole farm – you might get lucky.
- Sell some land and repay the debt – not ideal if you’d like to carry on farming.
- Separate the title on the house and try the equity release providers – does this generate the funds required on just the value of the farmhouse and must you stop farming so a business is not run from the property.
- Talk to us – we understand the value in land and whole farms, and have no issues with lending on a long-term equity release basis against whole farms.