Farm borrowing is continuing to rise as farms finance working capital and cashflow as well as long-term investments in land and buildings. However, banks are becoming more regulated and stringent with their lending and a recent NFU banking survey revealed that nearly 20% of farmers thought their banks would be unsupportive of requests to borrow this year.
But farmers can get good mortgage rates and terms from the banks and other lenders, if they know where to look and create their lending propositions correctly.
Peter Reynolds, our South West consultant, details the different types of lenders in the farm and rural mortgage market and the typical margins that are currently possible.
High street and traditional agricultural lenders - 1.5 – 3.5% per annum
You will need a strong and clean track record of income and will have to supply plenty of supporting background information if you want to borrow from these lenders. Loan to value of up to a maximum of 75%, and interest only and capital and interest options are available. You can access fixed rates from 1 to 25 years, as well as taking advantage of the current variable rate offers. Don’t just approach one lender – go to a few and see where you can get the best terms. This is one of the areas R&BS specialise - we negotiate better margins or improve lenders’ commitments or terms on our clients’ behalf.
Private banking - 2.25 - 5.5% per annum
This is an option for loans over £750,000. You will need to have considerable income and a good asset base (usually a minimum of £2 million). The lending proposal is much more about you as an individual and your circumstances, rather than the traditional high street appraisal of the financial analysis and track record. Many private banks are now doing away with the traditional ‘assets under management’ of £1 million and will now look for one-off mortgages and current account facilities. You do need to know which private banks have the appetite to lend, as well as which people to talk to as the presentation of your case is essential, together with the professional contacts that surround you.
Alternative rural and agricultural lenders - 6 - 8.5% per annum
We are working with several alternative lenders, specific to the farming and rural sector. They offer interest-only loans for two to seven years. They are a good solution for propositions that are sensibly packaged but that fit outside high street bank criteria or policy – including self builds, diversification enterprises and those projects with only projection-led figures. These lenders offer a lower loan to value but will take a view based on your track record and credit history. These options give you a chance, where the banks wouldn’t, at not ridiculous rates.
Agricultural lenders of last resort - 9% - 24% per annum
These loans are priced according to risk and are generally only used to buy time for a client, to save a farming proposition, to assist with short-term cash flow or to give a client sufficient time to sell. They are offered on an unsecured or secured basis. They are considered lenders of last resort and can offer facilities ranging from three months to open-ended terms. We very rarely use these lenders and will always work with clients to achieve better rates and terms. Our advice would be not get caught or cornered with these types of lenders unless the situation dictates.
If farmers aren’t getting close to these prices, they should ask themselves and their bank or lender why. R&BS will be able to work with them and their current or other lenders to get them a better deal.