Mortgage application declined by your bank?

Apart from during the financial crisis of 2008, R&BS has never seen so much variance in lender responses and appetites to farm mortgage proposals. We are seeing more farmers having lending requests declined by their existing bank and, as a result, not getting the finance they need to expand or develop. We explain the reasons why and show how you can be successful at getting the funding you need.

Shifting bank policies

Uncertainty and business stagnation caused by Coronavirus are having an impact on banks’ attitude to risk and their lending decisions, as too is the impact of the reduction of the Basic Payment Scheme.

Banks are becoming more selective to which businesses they will lend to and are looking at lending proposals with a much higher level of scrutiny. In recent weeks, we’ve seen farm businesses with good track records but with inadequate forecasts, mixed business and personal incomes, new business structures, farmers aged over 70, and other (often baffling) reasons, being turned down by their banks.

It is the particular bank’s policies at the time that influence their appetite to lend to different scenarios. So, where your existing bank won’t help, other banks or lenders usually will. Farmers are loyal when it comes to their bank, but we’d always advocate shopping around to test price and terms anyway, even if your bank is willing to lend.

Changing bank personnel

There continues to be changes in how farm business accounts are managed within the high street banks and in bank personnel. This is also impacting lending decisions and causing frustration among many farmers.

Banks are restructuring to cut costs and many farms are now managed by a call centre, whereas ten to fifteen years ago most farms had their own dedicated bank manager.

Businesses borrowing over around £500,000 may still have a dedicated bank manager, but we are seeing these managers retire and replaced with less experienced staff. Your bank managers used to know you and your businesses well and so could more easily support you if you were looking to borrow. But that personal client knowledge is being lost within banks and resulting in lending proposals being declined.

How to be successful

The keys to a successful lending outcome include:

• A proposal that anticipates any issues or questions that your bank or other lenders may ask you and shows your plans to overcome them
• Showing serviceability with assumptions in a proposal
• Building a proposal based not only on your business but on the wider picture of you, your family and/or business partners’ expertise – something that call centres or inexperienced managers don’t know
• A proposal that is right first time - once you have a decline it is harder to change a bank's decision, although it is often possible if a proposal is resubmitted appropriately.  
• Putting the proposal to several banks and lenders – and not just your current bank – so you can test and challenge prices and terms across the market.