Agricultural property loan: Funding a small equestrian business and family home

You might assume that agricultural property loans are only relevant to farmers, but there is lots of agricultural land in the UK that is owned and used by those outside of the traditional farming fraternity. One of the biggest sectors we support outside of farming is equestrian properties.

Equestrian properties often face many of the same hurdles faced by farmers when looking for property loans. In some cases, it is an issue of age, as lots of older couples choose to embrace their dreams of an equestrian life as they look towards retirement. This can be an issue for high street lenders, but at UK Agricultural Finance, we have no age limits on our loans.

In some cases, there are complex planning requirements that can put off some high street lenders. But our experience in the sector allows us to accurately evaluate the risks associated with these potential issues and adjust our loan offers accordingly.

Additionally, many lenders are unwilling to lend against uncompleted properties, as was the case for this particular loan. The high street was unable to lend against the incomplete farmhouse, despite the value of the land and existing facilities being of reasonable consideration.

Why did the equestrian business require an agricultural property loan?

One of the borrowers had started her own equestrian business in 2005. Since then, the business had expanded and become her sole income. This included the purchase of a smallholding from which to run the equestrian business. Over time, the borrowers felt it important to establish a dwelling on the smallholding so they could be on site to care for the broodmares and foals that were a part of the business.

The couple had been able to fund much of the work at the smallholding themselves through savings, family gifts and so on. They had been able to fund enough of the build to get the new residence watertight, but further funds were required to complete the property and make it liveable.

The planning permission was subjected to the condition of the residents of the property being employed by the equestrian business. This is not uncommon on equestrian properties of this type and was a condition that our team are very familiar with. UK Agricultural Finance was able to offer an agricultural property loan based on the value of the existing buildings, pastures, and facilities.

How did UK Agricultural Finance assess the quality of this agricultural property loan?

The borrowers had worked hard to develop their smallholding into an established equestrian business. They had ensured all the paddocks were securely stock fenced and had created flexible stabling areas that allowed them to keep the stallions separate from the mare and young stock, while also having space to separate young stock from mares when required.

They had also added various storage buildings for hay, machinery and the like. Almost all the buildings had concrete bases, and the remaining un-concreted areas were due to be completed once funding was secured.

The property also benefitted from an outdoor arena with an all-weather surface, and a horse walker, which are very popular facilities for these types of lifestyle equestrian properties. Additionally, the property had mooring rights for the adjacent canal, which could offer either an additional income stream through mooring rental or a further benefit to the sale value should the property need to be sold.

The borrower had established herself as a successful and experienced equestrian business in the eventing sector and didn’t need to advertise her business as most clients were repeat customers or came via recommendation. Due to this experience, she was able to charge a premium for her services, which ensured there was a good income stream. Additionally, there was a strong, employed income from her partner.

It was clear to our BDM, Sue, on the site visit that the quality and value of the facilities and land was significant compared to the required loan. Our maximum LTV is 65%, and we often lend around 30-50% on agricultural property loans, but in this case the LTV was around 15%.

When considering loan applications, our BDM team will often highlight similar previous examples to our credit control committee. In this case, there were a number of similar equestrian properties that      had received an agricultural property loan that Sue could reference for the credit control committee. This showed the demand for this type of property and the difficulties these properties      faced when seeking funding from the high street.

UK Agricultural Finance were also able to offer a drawdown process for this loan which included a two stage draw. This made the loan more cost-effective for the borrower. Sue was able to sign off the second draw down following a site visit and her second site report.

How did the couple plan to exit the agricultural property loan?

Following the completion of the farmhouse, removal of the mobile home and completion of the last elements of the equestrian facilities, the borrowers are expecting to refinance the loan to the high street.

Once the property is complete, the high street should be more willing to lend, particularly considering that the loan-to-value should be even lower by that time. Therefore, the borrowers have a clear exit strategy for their loan, and we were confident they would be able to refinance the loan.

Our BDMs always take the time to consider the exit strategy of the borrowers and discuss potential alternative plans should this be required. This helps to reduce our risk while also supporting our borrowers through their exit strategy, whatever that may be.