8 August 1997

Fixed rates are most popular

FIXED interest rate loans now account for over half the agricultural lending by NatWest as farmers seek to bring more stability to their finances.

A year ago the ratio of fixed to variable loans was 46:54. This year that has reversed to 53:47. "This is a significant change in a relatively short timespan and reflects the attractiveness of prevailing fixed rates, which are at their lowest for over 20 years," says the banks marketing manager, David Hughston.

NatWests economists believe variable interest rates will climb from 6.75% to a new base of 7.5% by the end of this year, as the Bank of England tries to maintain the governments inflation targets. It may then hold steady for a year or so, before dropping as the economy slips into mini recession.

But the fixed rate is likely to remain fairly static at a 7.25% base for 10-year money. Farmers can expect to pay a 1.5% to 2% premium above this, depending on their risk.

Mr Hughston also notes a drop in the overall cash liquidity of his farmers accounts. The first half of this year saw overdrafts about 10% higher than the same time last year, while credit balances were about 3% lower. The net deterioration of 7% was about in line with MAFFs estimate of the drop in net farm incomes, he says.n