Refinancing for the next 30 years?

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Refinancing for the next 30 years?

March 2015

refinancing

For some time enterprising farmers have been borrowing against high land values to invest off farm. Some buy more farmland, others try their hand in true entrepreneurial style at diversifying their business interests entirely.

At a Herefordshire auction last week Fisher German were one bid away from buying 68 acres of Grade 2 land for a farming client, which eventually realised over £10,800/acre for easy working land but nonetheless typical of offerings throughout the County. Ten years ago that land would have sold for nearer £4,000/acre. 

In that time the land has not changed, just farming's perception of its potential, in a market where supply becomes ever more constrained as the years pass.

But as land values hold their own at unprecedented price levels, the "perfect storm" arrives with the cost of fixed rate money still as attractive as ever - and if you thought the moment had passed for fixed rates to come off the bottom you would be wrong!

At rates close to 3% for 10 year money, 3.5% for 20 year and sub 4% for 30 year cash the message has to be refinance now rather than later. Our farming clients should be tracking fixed rates and considering their options.

At 3.5% over 20 years repaying capital and interest would now cost under £7000 per year for £100,000, or put another way represent a servicing charge of £70/acre on 100 acres, or £35/acre on a 200 acre unit. 

For the farming industry faced with falling commodity prices long term fixed rate money now offers a cost competitive way to fund working capital as cash flow through the business is cut back. 

Even for the most efficient farming businesses maintaining cash flow is critical to growing the business and working overdrafts can be unpredictable as banking policy changes with the weather, and costly when lending review fees are factored in.

For the larger agribusinesses with eye watering equity in land values this is the opportunity to refinance existing borrowing or build a working capital base for the next 20 to 30 years -giving the business strength in liquidity and the chance to grab opportunities for business growth and diversification either on-farm or off it.

For further information contact Anthony Mayell on 01565 453275 email anthony.mayell@fishergerman.co.uk

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