Want to make country life a reality? We can assist with your rural loan application.
How do rural loans work?
Rural property loans are available for both business and personal purposes. However, due to the nature of rural properties, they can be a little more difficult to get finance for. Rural property value tends to fluctuate more than urban property values and can be affected by events such as drought, fire or flood. Due to the higher volatility and limited market for rural properties, lenders typically adopt a more conservative approach when considering using rural property as security for finance.
What is the difference between residential and commercial land?
Residential rural properties, often described as hobby farms, are:
- Primarily for residential purposes.
- Not used for commercial income purposes or speculative investment.
- Used to raise livestock or grow crops for enjoyment and lifestyle purposes only.
- Valued based on land size and the buildings on it.
Commercial farms are:
- First and foremost an income-producing asset.
- Used to produce a commercial income.
- Valued based on the total assets on the property, such as machinery, livestock, crops, and other income-producing assets.
In valuing rural properties with income-generating potential, lenders may look for evidence of:
- Past profitability;
- Crop plantations;
- Commercial orchards;
- Machinery, such as milking machines, shearing sheds;
- Tourism accommodation such as cabins; and
- Cattle grazing potential.
Other important factors lenders take into consideration include:
- Location: Some lenders have postcode restrictions. If your property is outside of the lender’s approved postcodes, you may need to find another lender.
- Loan to Valuation Ratio Restrictions: Lenders will usually lend up to 95% of the value of residential urban property, whereas LVR limits may be much lower for rural property depending on the lender and the features of the property.
- Access: Whether the property is easily accessible, i.e., whether the roads are well-maintained or in good condition.
- Services: Whether the property is connected to services such as electricity, water, and sewage.
- Area Zoning: In order to be classified as a hobby farm rather than a commercial farm, the land will need be zoned as rural residential. If the land is zoned as industrial or commercial use this may impede your ability to get a rural home loan.
How much can I borrow?
The amount which you can borrow will often depend on the size, location and intended use of the property. Generally, acceptable rural securities will be land in excess of 0.5 hectares but less than 50 hectares, zoned for residential occupancy and connected to power and water. Here are some general guidelines:
- 50 hectares or less: Up to 95% of the property value if you are close to a major town, otherwise you can borrow up to 80% of the property value.
- Over 50 hectares, you can usually borrow up to 70%, depending on the lender.
- Over 100 hectares: At this size, lenders will often see it as “income-producing” even if that isn’t your purpose. It’s best to speak to us if your intention is for lifestyle and nothing more.
- Commercial farms: For land that you intend to use for commercial farming, loans are usually limited to a maximum of 60% of the property value.
Lenders will assess your income, employment, and bet asset position to determine the suitability of the loan and may take into account income generated from the property.
At Launch Finance, we take the time to understand your specific situation and needs to ensure you achieve your financial goals. Start with a free, no-obligation assessment of your situation – simply call us on (08) 9367 4222 or enquire online.