Mike Taylor gives opinion on long term finance for farmers
For the last 12 years since the previous recession economists have been forecasting rising interest rates whilst in reality the rates have stayed much the same or gone further down. This week we have seen some of the lowest long-term rates in living memory with the cost of fixed funds for 25 years offered by the Agricultural Mortgage Corporation (AMC) at 0.60%, that is 0.15% below current Bank Base rate which in it self is at a near record low. This means that depending upon how much you want to borrow, and how sound your business is, you might be able to get a mortgage for 25 years at a fixed interest rate on a repayment loan for not much more than 3% interest. To me that is quite extraordinary.
The first caveat is that it is just today’s rate and by the time you apply and are accepted it could be different, however, even if it went up a bit, it is still an extraordinary rate. Of course, that does not necessarily mean that it is the right thing to do you for your business, because fixed rate means exactly that, and you are losing flexibility and who knows what is around the corner. But I would suggest that if you have core long term borrowings, you should at least be considering doing something about it. Other lenders are also offering good fixed rate loans, but I don’t know of anybody else who will do it for 30 years on a lend and leave basis.
So why are rates so low? Well I am not an economist, but most of them didn’t predict this. As with all things it is surely a combination of factors, slow growth, Brexit, low inflation, market confidence and now coronavirus. But for whatever reason it is worth reviewing your borrowings, checking the rates and seeing if your lender or AMC can offer a better rate.