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05/02/2009 13:38:32
Is it time to consider fixing interest rates?
The 0.5% fall in base rate announced by the Bank of England today, brings into question whether now is a good time for farmers to consider fixing interest rates as a way of reducing financial risk in the farm business.
"Today’s fall in the base rate was widely anticipated as the Bank of England continues to strive to reduce borrowing costs and relieve pressure on UK businesses" says Paul Spencer, Agriculture Director for AMC and Lloyds TSB Agriculture, "I am pleased to confirm that we will be passing on this latest base rate reduction in full to our farming customers."
"Similarly, there is no surprise in the Bank of England borrowing figures for agriculture, which show a drop in borrowing of 4.9% to £10.1bn in the last quarter of 2008. This follows the extra £463 million paid to farmers in the Single Payment Scheme (SPS) by the end of December 2008, when compared with December 2007. However, the SPS payment does mask the underlying position which shows a growth in borrowing of £545 million over the last quarter in 2008 as high input costs continued to filter through to accounts."
"The average base rate over the last decade has been 5.5% so it is logical that some farmers will want to consider fixing rates," says Mr Spencer. "If borrowed capital is a significant part of the farm business, taking advantage of current rates by fixing all or part of the borrowing can help to ensure that monthly finance commitments are more stable, and budgeting easier in the long-term."
"Farmers should consider the level of risk they are prepared to carry and the degree of importance they place on having their future interest payments fixed. If your finances show it is logical to fix, you must establish a range within which you are prepared to work, and catch the market at an appropriate time."
Mr. Spencer continues, "The final decisions of if, when and how to fix are down to the individual and the business circumstances."
As with all financial decisions, Mr Spencer is keen to stress that anyone considering fixing their interest rate should take independent professional advice "I would add that those who are looking to change an existing fixed rate contract should pay particular attention to the level of any redemption costs involved."
"At AMC and Lloyds TSB Agriculture our commitment to agriculture remains undiminished. We continue to support good investment propositions in farming businesses across the country and we will do all that is possible to help our customers’ trade successfully through these uncertain times," concludes Mr Spencer.
"Today’s fall in the base rate was widely anticipated as the Bank of England continues to strive to reduce borrowing costs and relieve pressure on UK businesses" says Paul Spencer, Agriculture Director for AMC and Lloyds TSB Agriculture, "I am pleased to confirm that we will be passing on this latest base rate reduction in full to our farming customers."
"Similarly, there is no surprise in the Bank of England borrowing figures for agriculture, which show a drop in borrowing of 4.9% to £10.1bn in the last quarter of 2008. This follows the extra £463 million paid to farmers in the Single Payment Scheme (SPS) by the end of December 2008, when compared with December 2007. However, the SPS payment does mask the underlying position which shows a growth in borrowing of £545 million over the last quarter in 2008 as high input costs continued to filter through to accounts."
"The average base rate over the last decade has been 5.5% so it is logical that some farmers will want to consider fixing rates," says Mr Spencer. "If borrowed capital is a significant part of the farm business, taking advantage of current rates by fixing all or part of the borrowing can help to ensure that monthly finance commitments are more stable, and budgeting easier in the long-term."
"Farmers should consider the level of risk they are prepared to carry and the degree of importance they place on having their future interest payments fixed. If your finances show it is logical to fix, you must establish a range within which you are prepared to work, and catch the market at an appropriate time."
Mr. Spencer continues, "The final decisions of if, when and how to fix are down to the individual and the business circumstances."
As with all financial decisions, Mr Spencer is keen to stress that anyone considering fixing their interest rate should take independent professional advice "I would add that those who are looking to change an existing fixed rate contract should pay particular attention to the level of any redemption costs involved."
"At AMC and Lloyds TSB Agriculture our commitment to agriculture remains undiminished. We continue to support good investment propositions in farming businesses across the country and we will do all that is possible to help our customers’ trade successfully through these uncertain times," concludes Mr Spencer.
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