Rural property demand was robust last year, despite the Brexit vote. Supply was generally muted, with landowners adopting a ‘wait and see’ approach to the many potential policy impacts. While CAP subsidies are secure until 2020, and a weak pound boosted GBP commodity prices, the growing unpredictability makes income diversification far more important for all but the most profitable farms. As a result, potential buyers are increasingly discriminating between farmland’s underlying commercial value, its amenity value and its development potential.
Over the year, arable land prices fell 5.2%, partially due to the Brexit vote, but also as part of a general slow-down after several years’ heady growth, helped by a few key marginal buyers stepping back for internal reasons. Most demand was from local buyers, although lifestyle buyer activity increased in the North West. We have observed traditional commercial property investors looking to rural property to improve portfolio diversification, while a major agency recommended forestry as one of its themes for 2017, predicting 32% growth over five years, compared to 5.5% for farmland (and 13% for residential property).
High quality borrowers that are willing to lock into long term borrowing are still able to access bank finance, often at exceptionally attractive rates. However, we are seeing more and more reports of finance applications not being approved due to less than perfect past performance, concerns over future profitability, or just a plain lack of understanding. This is only likely to get worse, as regulatory changes make anything other than the plainest vanilla lending difficult for the banks.
Sterling weakness has driven up commodity prices generally, although input prices fell for most of 2016, a December rebound took end of year prices back to mid-2015 levels. Broad price changes for the main commodities in 2016 were:
- Ammonium nitrate +3.7%
- Red diesel +16.3%
- Feed wheat +25.4%
- Rapeseed oil +34.5%
- Milk +5.9%
- Beef +1.8%
- Pork +17.1%