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Investment borrowing hits record high

Farmers are also being advised to consider the structure of their finances while bank rates remain low


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Lending has included capital investment to reduce costs and restructuring of existing finance
Lending has included capital investment to reduce costs and restructuring of existing finance

Farmers should consider restructuring debt and existing finances to reduce costs while interest rates remain low.

 

This was the claim from bosses at the Agricultural Mortgage Corporation (AMC), which said it was on track to approve record lending in 2015, an increase of 20 per cent on 2014.

 

Despite poor prices and volatile markets, demand for borrowing was high in the dairy, beef, sheep and poultry industries. This included land purchases and capital investment. There was also demand for restructuring existing bank finances, the firm said.

 

AMC senior sales and agriculture manager Simon Eales said: "Customers have used long-term low interest rate loans to invest in a number of different ways, such as generating new income streams, reducing production costs and in some instances becoming vertically integrated to maximise their profitability."

 

The consensus in recent years has been for financial experts to predict an interest rate in the next 12 months, something which has proven to be wrong as they remained at historically low levels.

 

And AMC was no exception when it came to this prediction.

 

Mr Eales added: "So far this prediction has proven to be wrong. In fact, economists are once again predicting any significant rise in base interest rates is still as far as 12 months away, potentially with little movement until the beginning of 2017 at the earliest."

 

He suggested for many farmers income would not currently be covering costs of production, and suggested farmers consider restructuring farm borrowings to reduce this burden, as well as looking at how investment could improve profitability.

 

“Whatever your farm’s status, with interest rates still at low levels, you could consider fixing a proportion of your debt in order to hedge future interest rate rises out of your business," he said.

 

"As ever though, it is important to take professional financial advice from your accountant or independent financial adviser before committing to a binding loan agreement."


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