The Australian Farmland Values 2016 Report reveals that the national median farmland price increased by 9.3% in 2016, following a 5.3% increase in 2015 and a 6.8% increase in 2014. The report also states that the country recorded a growth of 6.4% in the national median farmland price over the last 20 years.

farmland rural property
Many Australians investors have successfully created their wealth through thoughtfully built residential property portfolios. However, astute investors have gone a step further to diversify their property portfolios through investment in industrial properties and farmland.

There is no doubt that farmland prices have steadily appreciated over the long-term as compared to many other asset classes. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) reports that the demand for Australian agricultural products is predicted to increase by 77 per cent by 2050. This is a projected increase of 1.3% per annum, which will increase the value of Australian agricultural land further.

For those looking to diversify their investments or planning to spend their golden years in peace, away from the city life, you’d be glad to know that you can access specialised home loans to fund your rural property purchase.

How much can I borrow?

Investors, no doubt, see opportunity in rural land. However, lenders consider rural property sales to be riskier as compared to residential property, considering the vagaries of nature. Nonetheless, if you don’t intend to use your farmland for business, but simply plan to invest in rural residential property, it is possible to get approved for a rural property mortgage.

The amount of the deposit, in the case of a farmland or rural property mortgage, depends on the size and location of the property. Depending on the lender and the property size, you may require as little as 5% or as much as 30% of the purchase price as a deposit. In general, banks are more hesitant while financing larger properties, greater than 10 hectares in area, and in such cases, the more the deposit you have, the better. It is also possible to use the equity in your home to fund your home loan deposit.

Good to know:

In most cases of rural property purchase, considering the larger land area, the size of the loan is larger, as is the repayment term and the amount. Are you sure you can afford the property you are planning to buy?

Remember that rural home loans can only be used to purchase farmland that is primarily residential. While you can use the land to grow crops or raise livestock for your personal enjoyment, the land cannot be used commercially for generating income.

What to keep in mind while applying for a rural home loan

While assessing your rural home loan application, apart from your deposit and repayment capacity, lenders take into account several other criteria such as:

Location – A rural residential land must be located in a rural or rural residential zone (depending on your state) and must not fall in an industrial or farm use zone, as this could complicate the loan approval process. Further, individual lenders have postcode restrictions for rural home loans, and it is best to check whether your land falls under an approved postcode or not.

Size – While there is no size restriction for a home loan, lenders might ask you to take a commercial loan for expansive properties, as they might not be considered residential farmland for lending purposes.

Extras – Lenders also want the property to be easily accessible as well as have access to utilities such as electricity and water supply.

Applying for a rural home loan

No two home loans are the same. For this reason, it is important to compare home loans offered by various lenders to choose the best deal for your investment. When it comes to rural home loans, different lenders have different criteria – with some allowing you to borrow more than the others. Many lenders also offer essential features such as an offset account and additional repayments and redraws, at no cost, that can save you a lot over the life of the loan.

If you have decided to buy a rural home, it is worthwhile to research the mortgage market deftly, as you might find several rural home loan deals in the market by specialist lenders that vary significantly. It is advisable to speak to an experienced mortgage broker, who can assess your situation better and guide you to the right rural property mortgage for your purchase.

By Vidhu Bajaj
HashChing Content Writer

HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.