20 years of R&BS – how the mortgage market has changed and what's changing

This spring marks R&BS’s 20th anniversary! Jim and Rob established R&BS in 2004 with one aim - to help farm and rural businesses access mortgage funding that is genuinely the best for them. They could not guarantee that when employed by one bank and restrained by its policies.

The past three years (2021, 2022 and 2023) have been our most successful yet, fuelled not only by a low interest rate environment, but we believe, increasingly by a desire for customers to seek out expert and independent financial advice. However, recent interest rate hikes and a higher cost of living have, understandably, undermined both business and customer confidence, ultimately curtailing investment decisions. 

What’s changed and what’s changing

On our 15th anniversary in 2019, we wrote an article on the market past and present. You can read it here “15 years of R&BS – how the market has changed and what's changing.” 

In summary, written in April 2019 before the Covid pandemic, the four key factors that we believed were influencing the market were:

1. The credit crunch, regulation and cost cutting in the high street
2. The rise of private banks and alternative lenders
3. Interest rates and future predictions
4.  Agricultural debt and cash-flow squeeze

We wanted to revisit this theme for our 20th anniversary, and believe five years on, the key influencing factors are:

1. Interest rates and future predictions
2. Changing lender appetites
3. The loss of experienced agricultural banking personnel
4. Alternative lending options 

Interest rates and future predictions

At the end of March 2019, on our 15th anniversary, Bank of England Base Rate was at 0.75%. The interest rate had remained low for a sustained period after the credit crunch. But, as the Covid pandemic gripped, base rate dropped to an all-time low of 0.1% in March 2020, but in December 2021 it began to climb, increasing 14 times before reaching its current level in August 2023. 

Rising interest rates, combined with increasing living and on-farm costs, have put pressure on all enterprises and farm businesses, and confidence to invest has fallen. Furthermore, the possibility of future bank base rate cuts has stimulated a 'wait and see' approach, further delaying many investment decisions.

While some of the economic issues highlighted in our Farm Finance Outlook 2024 remain relevant, economic growth is only forecast to increase marginally over the next 24 months. Inflation fell to 3.4% in March but reaching the inflation target of 2% will take time. This may necessitate continued higher interest rates to curb inflation. However, there is growing consensus around potential base rate reductions near summer and autumn of 2024 as we approach the General Election.

Regardless of the economic environment, farm businesses cannot stand still and must continue to invest. Funding remains readily available, but preparation and presentation are crucial for accessing it. Every business needs to consider its investment decisions based on its strengths and weaknesses, the opportunities and threats in the current environment, whether that is the economy, global events or indeed, as farming is well aware, the vagaries of the weather! 

Changing lender appetites

Securing funding has become tougher for businesses. Banks continue to scrutinize funding applications and are more selective about the businesses they will lend to. They are also displaying a tendency to prefer to assist existing customers.

Furthermore, lenders are weighting their decisions heavily on historic accounts. While historic trading performance is important, accounts are produced for tax mitigation and may not be a true representation of the business’ trading. Also, acquiring a new property, expansion or diversification will bring about a tangible change to the business operation. In these cases, historic accounts may not demonstrate loan serviceability, and forecasts, therefore, become crucial.

Unfortunately, banks are increasingly less receptive to considering forecasts. This environment is challenging for businesses seeking funding - unless it is a business with a good set of forecasts demonstrating that borrowing is affordable. Banks’ current reluctance towards forecasts is often a barrier to supporting some excellent businesses and clients, and disproportionately affects new ventures and those with progressive or entrepreneurial flair and ideas, which are vital for economic growth.

However, at R&BS, we excel at navigating this challenge. We understand lenders, the agricultural industry, and how to leverage forecasts to secure funding for new enterprises, expansions, and diversification plans. We know each lender; we know farming; we know how to navigate the lending minefield and to give our clients the best chances of success.  

The loss of experienced agricultural banking personnel

There continues to be a decline in the number and the experience of agricultural banking managers who are ‘on the ground’ to assist their customers. This is driven by bank cost-cutting, natural staff losses, and a shift to ‘direct’, phone-based services.

Many farming clients have had their bank manager changed or removed, leaving them without a crucial point of contact within the bank. 
Farming is a unique business and requires a specialised understanding.  Access to a service and a contact that understands farming is a prerequisite for any bank in the agricultural sector.  

Without access to knowledgeable bank staff, securing loans becomes significantly more challenging. The lack of service and experience of bank staff leaves many businesses feeling exposed, vulnerable, and potentially in jeopardy. This frustration has driven many farms and rural businesses to R&BS.

At R&BS, our clients have meaningful conversations with experts who understand their specific situation, agricultural practices, and the available funding options. We guide them through the complexities of securing the right finance.

Alternative lending options

The agricultural lending landscape is changing, with a few new entrants to the market. However, these tend to be far from the saviour of farming as they claim. They face their own strategic and funding challenges, which limits their ability to assist the entire farming and rural business spectrum. These new entrants also display the same symptoms as the established providers where they are selective over which lending applications they will support. They may readily accept applications where serviceability is clear, but struggle with proposals requiring forecasts for expansion or diversification.  

However, the benefit of an extra lender in the market is welcome and increases the probability of success and, potentially, an extended choice of options for clients. 

R&BS are also working with an increasing number of alternative lenders that are willing to lend to rural enterprises. While not necessarily long-term solutions, they offer a medium-term option for clients when the mainstream banks lack vision, or to allow clients to mobilise and maximise assets for sale. 

Securing funding can be challenging, but with the correct preparation, success is possible.  R&BS can help navigate the complexities by providing access to a diverse panel of lenders, from specialist agricultural lenders to private banks, and alternative lenders. We offer unbiased guidance to secure the right funding solution, both for now and for future generations.

Thank you 

We’re very proud of our achievements and the clients we have assisted. 

Our achievements and longevity would not be possible without our brilliant team and their specialist expertise – they know the farm and rural mortgage industry inside-out. 

Success would also not have been possible without our amazing clients, professional contacts, and all the lenders we work with. The relationships and communication we have with them all are key. 

Thank you all for being a part of our journey, and here’s to an exciting future!