Land agents have welcomed last week’s dramatic cut in interest rates from the Bank of England, hoping it could boost a flagging farmland market.

But the effect could take some time to feed through, said Andrew Shirley of Knight Frank. “My gut feeling is that it’s the wrong time of year for it to have an immediate impact. It will take some time before the drop is passed on to many borrowers in the form of lower mortgage and other bank lending rates.”

He reckoned farmers were more concerned about the slide in cereal prices and continued high input costs. But lenders have come under pressure to pass on the rate cut to customers quickly.

“The market for small residential farms where a lot of the value is tied up in the house has been hit particularly hard by the credit crunch,” said Mr Shirley. “So any fall in the cost of borrowing should help this part of the market, especially where vendors have taken a realistic view about asking prices.

“We have already seen the recent sharp increase in farmland values come to a halt and nobody is quite sure where the land market is heading at the moment. Hopefully, this cut will add a bit of confidence and help prevent values from slipping back too far.”

For residential property, Knight Frank is predicting that prices will fall by 25-30% from peak to trough. “We are not predicting such large falls in farmland values, but anybody keen for a quick sale will need to persuade buyers that they are asking a realistic price,” Mr Shirley said.

Charlie Evans of Strutt & Parker said his firm had received a good deal of interest in New Year instructions, but said little was likely to happen between now and Christmas. “Most buyers tend to borrow between 30% and 50% of the price, so it is very significant,” he added. “If the farm is valued at £5m, for example, the buyer will be saving £5000 a year in interest alone.”

Mr Evans said there was also an important impact on returns from an investment. Farms had the potential to yield a similar return to money held on deposit, which might now be generating as little as 3%. “Why keep it there when you could go and buy something with a similar rate of return and gain all the capital gains tax, inheritance tax and possibly income tax benefits of a farm?”