Brexit – now is the time to consider your mortgage options

Whether it’s a ‘Deal’ or ‘No Deal’, there is no doubt UK agriculture is facing a period of accelerated change. The industry needs to respond to the challenges of potential new trade agreements and labour supply issues.

Also, the prospect of phased removal of the Basic Payment Scheme and its partial substitution with environmental schemes will put more emphasis on improved productivity both on and off-farm.

Both events could result in major changes in land use and business structures across much of the country.

Manage change before it manages you

Now is a good time for farms to consider their options and get on the front foot to manage these changes.

Some of the Brexit implications could be negated by investment, particularly in diversification. Current low interest rates make now a perfect time to consider investment and borrowing options.

But set a clear business strategy first. Any change must be right for the business and the family owners, and the financial viability of any proposition be assessed with reliable professional advice.

The implications for borrowing

Any requests for mortgage funding will also need to be accompanied by a clear business strategy.

Strong and safe farming deals will continue to get good bank or lender support. But, as Brexit gets closer, the marginal and projection-led mortgage requests are coming under tighter scrutiny from lenders. Business start-ups and those with impaired credit proposals will find it even harder to get mortgage funding.

Lenders’ default positions will be to calculate and sensitise any loss in subsidy income over the coming years despite the low interest rates. We have seen the early signs of this with banks taking views on farm profitability once a proportion of subsidy is removed.

What can farmers do to secure the right funding

For those looking to invest, get mortgages or other borrowings, or restructure their overdrafts, we’d advise the following:

• • Plan ahead – put you, your family, your farm, your aims, where you want to be and how you want to achieve it at the centre. You can’t protect your business from every risk but taking time to plan and prepare can save time and money when the unexpected happens. 

  • Plan for cashflow shortfall - cashflows for the ill-prepared could come under severe pressure - requiring more overdraft, alternative loans or asset sales to fund the gap. (You can use our free templates!) Plan for any short-term debt requirements, so you don’t shock your bank with surprise requests.

  • Consider restructuring your borrowing arrangements – putting any hard-core overdraft onto a longer-term secured mortgage is a good tool for some. Look at your rates and your relationship with your bank – are you getting the support you need?

  • Plan three years ahead for major longer-term investments - to make sure that the business is in the best position to get the finance it needs when the time comes.

  • Shop around - your existing bank and banking relationship is often the first choice, but we always advocate looking at all the options. There might be more lenders and lending options than you realise. High street lenders, private banks and alternative lenders each have their own merits which might suit businesses better.

  • Professional advice - you will need professional advice to ensure that you achieve your borrowing requirements on the best possible terms. Your land agent, accountant and solicitor will also be invaluable in planning your business strategy.

  • Get the application right first time - preparing robust mortgage applications and lending proposals and putting them to a range of lenders will be important. Any proposal will need to be presented appropriately and based on sound, solid projections.