Commenting on today's decision by the Bank of England Monetary Policy Committee (MPC) to increase interest rates by 0.25% to 5.75%, the fifth such rise since last August, Paul Spencer, Head of The Agricultural Mortgage Corporation (AMC) said:
"While the rate rise was expected, it will not be welcomed by British agriculture. The first signs of financial recovery are emerging on arable and dairy farms as commodity prices rise in response to world trading conditions, but this increase in interest rates will eat into the gains.
"Based on an average AMC loan of approximately £250,000, a base rate increase of 0.25% equates to an additional £625 a year (or £52.08 a month) for a variable loan on an interest-only basis. Given that this is the fifth interest rate rise in 11 months, customers borrowing the average amount with AMC will be paying an extra £3,125 on annual interest repayments since August 2006.
"Nonetheless, the increase in interest rates has to be seen against the background of a very strong market in land and therefore an increased valuation for British agriculture's fixed assets. We continue to see strong demand for funds as farmers invest in the buildings and technology required to realise their competitive advantage in many markets."
