Low rates encourage more farmers to fix borrowing

Farmers are taking advantage of low interest rates by increasing the amount of money borrowed on fixed rates, according to figures from Lloyds TSB Agriculture.

It says that fixed-rate borrowing increased by 345% in the first quarter of 2009 compared with the same period last year.

“Many farmers are recognising that the current economic climate offers certain opportunities and are choosing to bring forward capital investment projects,” Lloyds TSB’s Paul Spencer said. “The increase in the demand for longer-term borrowing can be seen as an indication of the growing level of confidence in the agriculture sector.”

Barclays‘ Euryn Jones agreed that there had been a big increase in fixed-rate deals, particularly where farmers were looking to take on extra borrowing. “In the short term, borrowing on a variable rate is likely to be cheaper, but look at it over a longer term and fixing allows you to lock into a good rate. It also gives you a known repayment and lets you budget with more certainty.”

Many commentators predict that base rates could remain at 0.5% for much of this year and possibly into 2010, but, Mr Spencer says farmers should not assume this means fixed rates will remain low or fall over time.

“Because any borrowing decision carries a calculated risk, any responsible lender will underline the importance of seeking independent and specialist professional advice. When considering the right long-term risk management solutions farmers should not forget fixed interest rate and foreign exchange hedging strategies.”

Any business should aim to minimise the cost of borrowing, while retaining the appropriate flexibility for their business, he advised.