If you’ve set your heart on a serene country home or a small hobby farm, obtaining finance for rural property can be challenging. Unlike suburban properties, rural investments come with unique considerations for lenders, so here are some crucial factors to keep in mind.
Rural ambitions vs wariness from lenders
Securing a loan for rural property is often tougher than for a suburban home, as lenders view these properties as higher risk. Unlike suburban homes with steady demand and easier resale potential, rural properties face market fluctuations from factors like extreme weather, inflation, and lower buyer interest. Droughts, floods, bushfires, and inflation can all impact the value of rural land and the feasibility of such properties as investments. Be prepared for lenders to approach these loans with heightened caution and specific requirements.
Assessing property purpose: Lifestyle or income?
The purpose of your rural property will influence how lenders view your loan application. If you’re buying for lifestyle reasons — perhaps for a hobby farm or a retreat — lenders are more likely to assess your property under residential loan criteria. However, if you plan to generate income from livestock, orchards, or even a bed-and-breakfast, lenders might recommend a commercial loan, especially for properties over 100 hectares. Larger properties are typically viewed as commercial investments, carrying higher interest rates and stricter lending criteria. Some lenders may allow you to generate a limited amount of side income from a hobby farm, but this varies and will need to be clearly discussed with your lender.
Land size and loan viability
The size of your rural property is a critical factor in loan approval. Lenders are generally more comfortable with smaller parcels of land under 10 hectares, which are often treated like residential properties. For land over 50 hectares, expect to need a larger deposit — potentially 20-30% depending on the size and location. Properties exceeding 200 hectares may pose a significant financing challenge, as lenders consider such investments more speculative. Additionally, rural land valuation typically excludes farming equipment, livestock, and commercial infrastructure, so expect valuations to focus solely on land size and basic residential attributes.
Key property considerations for loan approval
Lenders may also impose requirements on accessibility, infrastructure, and zoning. They’ll want to see that the property has dependable access via well-maintained roads, along with stable utilities such as power, water, and waste management, even if it’s a partially off-grid setup. In addition, the property must generally be zoned as rural or rural residential for it to qualify as a rural home loan rather than a commercial one. Some lenders also have postcode restrictions that could affect the loan eligibility based on location.
Preparing for a stronger application
Given the unique challenges of financing rural properties, a robust financial profile is essential. Lenders will look closely at your income, employment stability, and asset portfolio. Moreover, rural properties often come with higher insurance premiums due to increased risks of natural events, so budgeting for these extra costs is wise. By demonstrating financial stability and providing a significant deposit, you can improve your chances of securing finance for your rural dream.
Rural property demand in changing times
The demand for rural properties has shifted with inflation and fluctuating interest rates, particularly as Australians seek lifestyle changes. Additionally, extreme weather events have made certain regions more vulnerable, affecting rural property demand and value. Understanding these trends and working closely with a lender who specialises in rural financing can help you navigate the complexities of purchasing a rural property.
By taking these factors into account, you can better prepare for the journey to rural living and improve your chances of realising your countryside ambitions.
