Farmers and rural businesses look to re-finance with alternative banks as lenders shy away from interest-only renewals across commercial mortgages.
High volumes of lending during Covid-19 have prompted a shift in the commercial mortgage space, with a number of banks beginning to shy away from renewing interest-only deals.
Bradley Smith, an agriculture finance specialist who works with farmers, landed estates and private landowners for Knight Frank Finance, said the trend was being driven by lenders keen to recoup loans paid out during the pandemic.
He said: “There are a couple of potential drivers. Some high street banks are running low on capital and need to churn a bit of their debt book. They lent quite a significant amount of money during the pandemic and require some of that to be paid back.
“Others opt not to renew interest-only deals where the client hasn’t identified a feasible repayment plan to pay down the capital. To want an interest-only deal just because the business can afford to carry that amount of debt, is deemed with certain banks not to be a valid reason to renew the facility.”
However, he added: “That’s not to say another bank won’t happily make you an interest-only offer, in fact plenty of banks are willing to.”
Indeed, Bradley has been helping many farmers and rural businesses to refinance with lenders offering interest-only deals but, he flagged, it’s important to know who to speak to.
Discussing banks’ general appetite to lend into the sector, Bradley said there are still some banks that “are not so keen, which is why it’s key to have the right bankers around you, who are willing to lend into the areas that are of interest to you, for example if you’re looking to diversify your income stream to create a ‘staycation’ on your land, or even a sustainable investment such as a new solar farm.”
He added: “Banks have varying appetites for different parts of farming depending on the exposure they've had to it in the past, so it really helps to seek out someone like me in the brokerage sector to help match you to the most appropriate lender for your business.”
If you’d like to discuss your current loan arrangements, including refinancing options, please speak to our specialist agriculture finance specialist Bradley Smith, who will be able to help you identify the best financial approach for your circumstances.