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Debt pressure on UK land market hits 17-year high

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The proportion of British farmland sales prompted by debt worries has risen to its highest in 17 years, when base interest rates were 20 times current levels, said Savills.

More than 20% of farmland vendors last year said that debt concerns were behind their sale, up from some 13% in 2012, the property consultancy said.

This was the highest proportion since 1996, when the base rate was 10% - compared with the current record low of 0.5%.

"There has been a bit of pressure [on farmers] in the past year," said Ian Bailey, head of Savills' rural research department.

"There were not good crops back in 2012," thanks to persistent rains which affected autumn sowings for last year's harvest too, which for wheat was the smallest in 12 years.

Some farmers with heavy borrowings "perhaps found cash flow problems", he said.

Farm-aid

However, many of the debt problems were related non-agricultural businesses hurt by the poor economic climate, and which vendors supported by selling land.

"There was evidence of non-farmers with off-farm business interests seeking to release capital," Savills said.

"Some sellers saw an opportunity to sell at an attractive price, to provide aid for a business outside farming," Mr Bailey told Agrimoney.com.

Before the flood

The comments follow the wettest January on record in large areas of southern Britain, leaving some farmland under water for weeks.

"I do not know whether the floods will make any difference to the market in any way," he said, if adding that any impact would not be known for some months.

Any they follow evidence of deteriorating agricultural sector credit conditions in the US, where the farmland market is slowing after a decade of dramatic appreciation.

Values felling last year in Iowa, the top corn and soybean producing state, for the first time since 1998, undermined by drought as well as pressure from lower crop prices.

Land vs shares vs houses

Savills stood by expectations that average British farmland prices will rise by an average of 6.0% this year, supported by a continued squeeze on the amount of land coming up for sale – at some 0.25% of acreage per annum, compared with historic rates of 2.5%.

Indeed, Mr Bailey noted that while the British market has "seen slight corrections, it is not like equities or the residential market", which have histories of large retreats.

"It can pause, but then powers up again."

He added that the market performance this year was likely to vary significantly between farms of different grades, with the best land, attractive to funds, set for 8.0% growth, while poorer quality sites, attracting fewer bidders, appreciates by 3.0%.

By Agrimoney.com

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