Financing a farm

Werzle

Member
Location
Midlands
We have just re-mortgaged with Natwest on a 30 year interest only mortgage at 3.1% floating rate.

If you sit down and do the math it soon becomes apparent that debt becomes very affordable compared to a repayment mortgage.

I work on the basis that if inflation averages 2% over the next 30 years then my principal sum will be devalued to 55% of its original amount in real terms, so why pay it back?
How do you intend to pay off the debt?
 
We have just re-mortgaged with Natwest on a 30 year interest only mortgage at 3.1% floating rate.

If you sit down and do the math it soon becomes apparent that debt becomes very affordable compared to a repayment mortgage.

I work on the basis that if inflation averages 2% over the next 30 years then my principal sum will be devalued to 55% of its original amount in real terms, so why pay it back?
Ive thought about this before, what happens after the 30 years? Say the asset is worth less and we havent had inflation, will you have to repay the sum at the end of the 30 years or will they let you refinance for another 30 years? What happens if your profit figures are poor for borrowing against or interest rates are up at 8% by then?
 

Werzle

Member
Location
Midlands
Unless you already own stock, machinery etc, you will have to borrow heavily, sacrifice your family time, make lifestyle decisions which will have an adverse impact on your time on this planet.

Before you know it 20/30 years will have flown by and your time in this world maybe nearly over. Not all your children may want to continue to farm, which will lead to inheritance disputes, failing that one of your children will have to buy the others out and borrow heavily again.

Farming is a privilege and and excellent way of life, but are the sacrifices really worth it if you're starting with a massive debt burden? A lifetime of penny pinching to make ends meet, followed by death and family arguments.
Mostly all about helping the next generation find life easier and be able to push on
 

SRRC

Member
Location
West Somerset
We have just re-mortgaged with Natwest on a 30 year interest only mortgage at 3.1% floating rate.

If you sit down and do the math it soon becomes apparent that debt becomes very affordable compared to a repayment mortgage.

I work on the basis that if inflation averages 2% over the next 30 years then my principal sum will be devalued to 55% of its original amount in real terms, so why pay it back?
Do you mean that the floating rate is 3.1% above base?
 

midlandslad

Member
Location
Midlands
We have just re-mortgaged with Natwest on a 30 year interest only mortgage at 3.1% floating rate.

If you sit down and do the math it soon becomes apparent that debt becomes very affordable compared to a repayment mortgage.

I work on the basis that if inflation averages 2% over the next 30 years then my principal sum will be devalued to 55% of its original amount in real terms, so why pay it back?

Is it for 30 years though, as NatWest would generally have a review built in every 5 years.
 

icanshootwell

Member
Location
Ross-on-wye
Sorry but even on a low interest rate buying 100a over 30 years interest only is getting on towards 3k month which is 36 k a year you have to find before you make a profit, a gross margin on wheat this year could be £250/a if you have kept your costs down or even got it in the ground, which equals £25k on the 100/a, less for barley and oats. Add this to expensive finance and the tax man goes hungry, I see it as a way of reducing farm profits, maybe for sum. Unless your chucking 50% in the pot in can,t work can it.
 

steveR

Member
Mixed Farmer
Generally by making a shed load of money doing something not farming related first.... Land values have little relationship to farm incomes. ...

Ever been the case... well certainly from the Industrial Revolution on.

That or a gift from the King, or a greatful Nation has helped too. Wellington, Marlborough etc etc... going back to Norman times and before, I hazard?
 

czechmate

Member
Mixed Farmer
Sorry but even on a low interest rate buying 100a over 30 years interest only is getting on towards 3k month which is 36 k a year you have to find before you make a profit, a gross margin on wheat this year could be £250/a if you have kept your costs down or even got it in the ground, which equals £25k on the 100/a, less for barley and oats. Add this to expensive finance and the tax man goes hungry, I see it as a way of reducing farm profits, maybe for sum. Unless your chucking 50% in the pot in can,t work can it.


Hopeless if you can’t put up at least 50%
 

teslacoils

Member
Arable Farmer
Location
Lincolnshire
Yup, bought some last year. The day after its paid and whatever mortgage is needed is sorted i don;t even think about it again

Not sure I'm going to be able to buy any more again. Am hemmed in now, and got more than I need really. I don't worry about the huge loan so long as I can get to next month!

Thats a big fib. I worry about everything, all the time! But I've got it and noone else can have it....unless they offer me a huge wodge of dosh.
 

cattleman123

Member
Location
devon
We have just re-mortgaged with Natwest on a 30 year interest only mortgage at 3.1% floating rate.

If you sit down and do the math it soon becomes apparent that debt becomes very affordable compared to a repayment mortgage.

I work on the basis that if inflation averages 2% over the next 30 years then my principal sum will be devalued to 55% of its original amount in real terms, so why pay it back?
Thats exactly the way Boris is thinking inflation will reduce the government debt...its always been the case bought my 1st house when i were 21 ...20k morgage how the hell was i going to pay that i thought,next day it wasforgotton and away we went....house now worth just short of 300k
 

Dave645

Member
Arable Farmer
Location
N Lincs
I think land is over valued, and with subs in flux, it’s not guaranteed to keep rising in value. we have seen it crash and banks have pulled the rugs out before.

while interest only loans sound good on paper, I would always want the option of paying the principle down if
I have a good year, this will reduce the underlying interest only payments.
That said if you don’t the risk is on the bank, if they only hold the titles to the land your mortgage as collateral.

While I can see interest rates staying low for now that’s not to say they will be low for 30 years.
I would be very worried if the bank held more than just the land I am mortgaging, or if the terms and conditions allow them to recover there money in full if the land values falls below the borrowed amount, I supposes they may even ask for extra collateral to be offered if that happened. If they have reviews during the 30 years period it runs.
It may even be in the terms and conditions that if the land falls in value they have the right to withdraw the mortgage.
 

cattleman123

Member
Location
devon
100% ^
If this is the case the ones with no debt will loose out!!
Yes they will if you invest money at todays rates inflation will devalue it,if i had not borrowed money i would have very little today and that is a fact..opportunities are there to be taken,my view is borrow the money and go forward i bought a field when i was 17 parents had no spare cash
£5750 borrowed the lot...i had no cash as i had just bought a little house for 4 k and had borrowed 1/2 of that as well and i must add...on that field i now have my farm....
 
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I’ve seen small family farms relatively well off in the 80’s end up unviable now slowly having to work off farm to manage to make a living.
The ones who bought land were saddled with debt for years and maybe still are are better off have more collateral run viable businesses and have more flexibility
 

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