Farm Borrowing

[midlandslad]

Year on year increases in farm debt, is it sustainable or a bubble prime to burst? I spend a lot of time looking at farm accounts and once you take off the loan repayments, HP payments and bank charges there is often not a great lot, if any, left.

I understand the banks when it comes to looking at new lending they are leaving in the support payments as farming is seen as resilient and will replace from elsewhere. Is it me or is this a case of their targets being more important than good business decisions!?

 

[Werzle]

Who else are they going to lend too in the current climate, farms are a safer bet

 

[BRB John]

It's really depends on the business. Like why is the debt increasing?
If it is through purchases of land often you can justify it as land is in demand but if it is just to pay for fixed cost then there should be more question asked but i feel like they are not asked because the bank assumes its money is safe because they know the farm is worth a million plus so who cares if their debt is increasing.
Farmers will always complain about the value of land even when it is the only thing keeping their business going more often than not.
Farmers are most definitely not a safe bet but their land is.

 

[Muddyroads]

How much of that borrowing is direct from banks though?

 

[midlandslad]

How much of that borrowing is direct from banks though?

In terms of quantity it will be most I expect, however, in terms of annual cost it is often the HP which is the killer.
For heavily borrowed arable businesses this year will be tough I think.

 

[capfits]

Plenty reducing their borrowing too, just saying.

 

[Little squeak]

I was told by a banker once that 50% of all farms operated without any borrowing at all. farming debt isn't evenly spread thats for sure. It's easy to believe that your situation is "normal" in reality every business is different.

 

[livestock 1]

When I borrowed money years ago for land I was told by different banks that the return on investment was 4% which I laughed at. They said that was their figure which they came up with through their farming customer’s accounts. Agricultural loans were standing on average 2% less than business loans due to agriculture’s lack of profit on investment and good record for paying monies lent back.
A lot of other businesses borrow a lot of money now and are less safe bets for banks but some have better accounts currently and good looking business plans going forward

 

[jendan]

In terms of quantity it will be most I expect, however, in terms of annual cost it is often the HP which is the killer.
For heavily borrowed arable businesses this year will be tough I think.

Are the AMC still lending much money out?

 

[midlandslad]

Are the AMC still lending much money out?

Yes money will still be going out of the door at a rate of knots, £500m lent last year.

 

[jackrussell101]

Yes money will still be going out of the door at a rate of knots, £500m lent last year.

What margin rates are you currently seeing on new long term loans this summer?

 

[midlandslad]

Depends on term and quantum, however more than a year ago guaranteed. Despite the drop in base rate and fixed rates the new borrower is no better and probably worse off

 

[livestock 1]

In my experience in the beef and lamb sector is that in the late 80’s even when experiencing high rates the borrowings weren’t looking unmanageable to pay back at a decent rate of knots if you were willing to work hard and expand.
Im not so sure that’s the case now

 

[jackrussell101]

Depends on term and quantum, however more than a year ago guaranteed. Despite the drop in base rate and fixed rates the new borrower is no better and probably worse off

Say for a farm mortgage £1.5m plus, 25 years variable or fixed...

 

[som farmer]

i think that every farm, and farmer, are different, the amount of debt, can vary, in respect of what each farmer feels comfortable with ! Most certainly, if you take debt out of farm accounts, it can be a very profitable business, then, of course, you get a large tax bill ! But, as rightly said, the asset value, can be high, and readily redeemed. Sometimes i wonder if owners, v tenants, owners core debt, is little different to tenants rent !

 

[jendan]

Say for a farm mortgage £1.5m plus, 25 years variable or fixed...

I think they are quoting 3.6%-3.75% at the moment.