Busiest first half-year for five years despite market challenges, says AMC

British farming continues to invest in improvements despite deflated prices, volatile markets and rising input costs. Head of the Agricultural Mortgage Corporation (AMC) Jonathan Allright says despite expectations that many businesses would rein in spending plans as a result of reduced farm incomes and increased outgoings, AMC has seen its busiest first half for five years.

“Generally, it’s the most efficient farmers who are continuing to expand,” he says. “And in part, this is due to the extremely attractive fixed rates currently available in the market. The main reasons we are seeing for borrowing are land and farm purchase, building and infrastructure improvements, and finance restructuring.”

Mr Allright explains that at the height of the financial crisis in 2012, underlying fixed interest rates reached a record low. They subsequently edged up marginally in the following months, but have since dipped again, predominantly as a result of global economic conditions.

“The Governor of the Bank of England has predicted that the Bank rate will rise towards the end of 2015 or early 2016 and fixed rates, which fluctuate on a daily basis, are likely to show a gentle upwards curve. This is already starting to happen.

“However, it remains a very good time for farmers to discuss options for long-term loans as there are still 30-year fixed rate loans available on the market at between 4% and 5% for the largest deals, and 10-year loan rates at 3.5% to 4%. For those looking to borrow, the best option could be to fix a proportion of borrowings to protect against increases in costs.”

Mr Allright says AMC is also seeing more customers investing in renewable energy production, with loans approved for a number of hydro-electric and biomass boiler installations reflecting the drive for improved energy efficiency and security of supply.

“As well as this, changes to permitted development rights are prompting a number of building conversions. Other farmers are simply looking to restructure their current borrowings to help manage costs and ‘trade through’ a challenging time or to access additional funds.”

He says that although it’s almost impossible to predict interest rate movement with a high degree of accuracy, the best that anyone thinking of investing in their business can do is to understand current costs and to make a full and detailed analysis of how their business is likely to perform going forwards. “And of course, always seek professional financial advice before signing a binding loan agreement,” adds Mr Allright.

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