The Fed awakens our interest

And so it came to pass that in the mild mid-winter, the US Federal Reserve did increase its interest rate as expected last month. It follows neatly that January, in taking its name from the god of new beginnings and transitions in Roman mythology, the developed economies are coming out of an old and in to a new phase but in what direction this will take interest rates this side of the pond remains to be seen - probably at some point later this year, according to Mark Carney’s latest pronouncement.

In the arc of history, the near-decade since the Federal Reserve last raised interest rates in 2006 is not so long a time. But the rate rise has certainly signalled a new phase, if only psychologically, according to financial commentators.

Some commentators see this new phase as a return to the old ways in which central banks’ main power was to use their interest rates as a controlled response to conventional domestic economic pressures such as inflation.  

Others point to the fact that the ‘norms’ of convention no longer apply when it comes to domestic interest rates in the post-2008 global economy where the European Central Bank (ECB) maintains negative interest rates and in economies which are smaller and much more open to that of the US.

What there does seem to be broad agreement on, however, is that more importance is attached to what the Fed rise signifies and what it might trigger than the numerical impact of the rise (to 0.5 per cent from 0.25 per cent).  That being the slow and controlled rise of rates away from a low interest rate ‘experiment’ by developed economies at some point in the coming 18 months.

Only time will tell on that matter. However, what just the anticipation and the Fed’s rise did trigger in the UK was consideration of the Bank of England’s position under the governorship of Mark Carney.  There was much scrutiny of the Bank’s hint in July last year that it might raise interest rates by 2015’s end when it failed to follow-through, chiefly because the inflation target of 2 per cent had not been reached.

It is a different kind of Bank of England under a different governor now than the one which accompanied us into the global financial crisis of 2007/2008.  

With abolition of the Financial Services Authority in 2013, the Bank assumed more regulatory powers which remain focused on, and exercised by, the robustness of our banking system.

As the Fed was raising its rate, the Bank of England was concerned about the indebtedness of the buy-to-let residential property sector. While reminding UK lenders of its powers to act on any kind of lending it considered too risky, it clearly signalled no immediate rise in interest rates in the first part of this year.

Next year, 2017, will mark 20 years since the newly elected Labour government of that May day cut the apron strings and gave the Bank of England its independence from political control by any government of any day. On that same day, Chancellor Brown raised the base rate by a quarter of a point to 6.25 per cent. 

We have all come very far in 20 years and it’s been a turbo-charged journey in the past eight. 

Whether the Fed’s rate rise marks a return to the old days of central banks using interest rates to control key elements of their economies or it heralds the start of a ‘new new’ remains to be seen.  However, as we start this new phase, may the Fed and all central banks be with you and your business interests in 2016 and beyond.

Will Mooney MRICS
Partner
Commercial, Cambridge

New grant open for applicaitons

A new grant intended to help land owners and managers plan new woodland in England is open for applications.

The Woodland Creation Planning Grant (WCPG) will contribute towards the costs of gathering and analysing information to ensure proposals take account of potential impacts on landscape, water, and the historic environment. It will also help support stakeholder engagement and understanding.

From my experience of planting schemes, the planning phase can often involve significant expense, so aid at this early stage is welcome.  The forestry sector’s ambition for more woodland in England will be helped by this scheme, making it easier to create woodland and secure funding from investors.

Applications will be considered as they are submitted and it makes sense to apply as early as possible while the limited funds are still available.

The grant is part of the new £1 million Forestry Innovation Fund and £200,000 has been allocated for the WCPG fund this year. The funding and administration of the grant is separate from the Countryside Stewardship Scheme and the deadline for applications is February 15, allowing time following allocation of a grant for the plan to be completed before March 31, when funding for this pilot scheme closes.

The plan should describe and address the planting scheme’s impacts through careful design. Land managers need to ensure their proposals take account of any impacts on forestry and the natural environment, landscape, water and the historic environment.

The Standard Payment is £150 per hectare up to a maximum of £30,000. It covers the collection and analysis of all essential information to create an informed plan. Proposals need to meet some basic criteria, covering at least 30 hectares and showing potential to benefit the forestry sector in the long-term through the provision of timber or other wood products.

However, not many people interested in taking advantage of a grant will want to take 30 hectares of land out of agricultural production. 

A plot of 30 hectares or more can have a major visual impact on the landscape which may raise concerns at the planning stage.  Also, planting woodland is a very long-term commitment requiring a significant capital outlay with a limited financial return that will not come to fruition for many years. 

It will very often be the grandchildren’s generation who will be the first to see a sensible return.  In addition, in most instances planting woodland on all but the worst agricultural land will have a significant detrimental impact on its capital value.

Therefore I think relatively few landowners may be interested in this grant scheme but further information, including details on eligibility and how to apply, can be found on Forestry Commission England’s website at: http://www.forestry.gov.uk/england-fif

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

“it’s easy to be a busy fool”

They say “it’s easy to be a busy fool” and this is a trap into which livestock farmers can easily fall because animals need looking after, especially in winter when routine tasks like feeding, mucking out and bedding down can take up much of the day.  

By the time all this daily work is finished many farmers simply do not have the energy to think how they could improve or alter their farming system for the better.

This was reflected in a study presented at the Oxford Farming Conference entitled “Entrepreneurship: A kiss of life for the UK farming sector?”  The paper was written by Graham Redman of the Andersons Centre and Muhammad Azam Roomi of the school of management at Cranfield University.

In the paper Redman explains that farming, unlike many other businesses, has evolved to be more than making the maximum profit, they are often about lifestyle and longevity. Consequently farming businesses generally last a long time but their return on investment is not as great as others.

Redman argues that this approach has stifled entrepreneurship in British farming.  He also explains that diversification is not the same as running an entrepreneurial business. 

Farmers who generate additional income from diversification may be running an efficient or profitable business but it doesn’t make them entrepreneurs. To be truly entrepreneurial, you need to be an original thinker.

“Entrepreneurship involves innovation,” he says. “It involves doing something new rather than just copying something that someone else has done.“

Not everyone can be an original thinker and I see no problem in copying someone else’s idea provided you do it well, but equally there must be original thinkers in the farming community who are stuck in the trap of time consuming routine tasks.  If those farmers could give themselves some strategic thinking time this might well benefit their business and perhaps also the wider farming community.

Redman goes on to say: “It is also important to exploit your skills to the maximum – and those of the people around you, as well as your other assets. 

“Evidence suggests that people do best at what they are good at, what they enjoy doing and what they understand. As a farmer, you are more likely to be successful doing something in the food supply chain than you are going off and building a factory that makes shoes.”

So, why not make some time for yourself to think? The results may be scary because change very often is. But you may find the changes you decide to implement are less risky than carrying on as you are.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Renewed activity in Suffolk’s £1m+ market

As residential sales agents, we are always relieved to get back to our desks in January knowing that December is behind us.  That being said, whilst December is a quiet month for agreeing sales, it is by no means inactive when it comes to the near-hysteria of meeting exchange and completion deadlines with almost everyone wanting to be settled in by Christmas!

Spring used to be the traditional peak-time for our market but this pattern has changed over the past five years:  we now have to be fully geared-up for the immediacy of very keen buyer demand through January and February – and this year is no exception.  In fact, the first two weeks of 2016 have been exceptional.

Whilst last year saw the strongest performances and demand for houses up to £800,000, we are now experiencing high demand in the early £1,000,000s and agreed four such sales in the second week of January.  The reason for this is Stamp Duty Land Tax (SDLT).  In last December’s Autumn Statement, George Osborne announced that buyers of additional residential properties - above and beyond their principal home - would have to pay 3 per cent above the current stamp duty rates from 1 April this year.  This has, in particular, really made the London second-home buyers jump off the fence.  

They know they have to make quick decisions on which house to buy if they are to exchange and complete by 31 March 2016.  Solicitors are going to be kept busy!  This is temporary good news in so much as this price bracket was the weaker sector last year.  Post 1 April may well be another matter…

It’s interesting to see that our current London buyers are clearly successful business people – for once they are not, in our experience, stockbrokers or bankers.  The volatility of international stock markets appears to be keeping ‘The City’ buyers well and truly in London for the time being.

As yet, the facts on the new SDLT aren’t set in stone, however. The Treasury is consulting on the SDLT changes until 1 February 2016 and everyone can have their say if they choose to hop onto the relevant HM Treasury website and relay their points of view.

But this is just one sector of the market.  Looking right across the price thresholds, we predict a confident year ahead for our region and this is an opinion shared with most property experts.  Forecasts for capital value growth through 2016 in East Anglia range from around 4 to 8 per cent.  Our Suffolk, Cambridge and Northampton offices are going to be busy…

Caroline Edwards
Partner
Residential Sales, Long Melford
T: 01787 888622
E: caroline.edwards@carterjonas.co.uk

Will there be an increase in land supply on the market during 2016?

Pressure from banks reviewing farm incomes could contribute to an anticipated increase in land supply on the market during 2016.

Bank reviews could encourage sales of off-lying parcels of land and motivate the sale of whole farms as pressure on commodity prices drives farmers from the industry. Other sellers may be tempted to take their profits from land bought before 2006 after which land prices started to rocket as the global recession set in.

While agricultural land values increased by 2.5 per cent in the first nine months of last year, 2015 witnessed the lowest rate of increase since 2009, indicating that now could be the time for owners to take profits and recycle their capital. 

Investment buyers driven by opportunity rather than location are still very active, creating pockets of activity that can see vastly different values in land sales only 10 miles apart.

Investors are not necessarily bad news for local farmers. While they add competition, which is great news for all those looking to sell, they invariably do not farm the land themselves and so create opportunities for innovative contractors or new farm business tenancies. 

During 2015 my firm, Carter Jonas dealt with the sale of 32,900 acres across the UK, both on and off the open market, with many of those sales made possible by our management teams negotiating deals to obtain vacant possession of farms prior to sale.

It seems the most active buyers across the country are either investors looking to avoid Inheritance Tax through Agricultural Property or Business Property Relief or those trying to avoid Capital Gains Tax following the sale of development land using Rollover Relief.  Farming purchasers are less visible and tend to focus on the 50 to 200 acre blocks in close proximity to the “home farm”.

Those seeking to take advantage of Rollover Relief have a finite three-year window to invest funds into land, which may explain why so many successful deals have been concluded in very short timescales as the three-year deadline approaches.

As the economic recovery has taken hold and government planning policy is encouraging house building, the development land market has kick-started, increasing the volume of roll-over receipts actively seeking a home in agricultural land. This source of demand is forecast to account for a growing proportion of the land buyer profile over the next few years, taking up the slack caused by the increasingly restrained purchasing activity of farming buyers. 

Across the country we have seen blocks of farmland of more than 1,000 acres sell strongly – farms and estates with shooting interest also sell well. Of particular importance is land of all descriptions outside towns and cities where development is taking place and therefore where there is roll-over money looking for a home.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Goodbye and good riddance

Goodbye and good riddance: 2015 has been a year to forget for most farmers.  The bright side has probably been the weather helping crops grow well and producing record harvests for many, which was just as well because crop prices tumbled.  

To put this in to context, the value of feed wheat has fallen from around £130/tonne a year ago to around £105/t just before Christmas. This is a drop of nearly 20 per cent and with costs of production running at around £130/t it is not difficult to do the maths. 

In the livestock sector, sheep farmers had a particularly difficult year as lamb prices fell away sharply in the spring and summer with many lambs being sold at around £60/head compared to  £80-£90/head the year before.  This has led to very challenging times which still remain with lamb prices now about 50p per kg lower than a year ago.

Beef prices became more stable in 2015 but that followed big price falls in 2014 and so some respite was welcome. But even so prices have eased with finished cattle prices currently down around 15p/kg compared to this time last year.

However, the headline grabbing news has been the sustained and dramatic fall in milk price which is keeping many dairy farmers under pressure.  In this area we are luckier than some as very few of our farmers are signed up with the worst hit milk purchasers such as First Milk where their producers are receiving not much more than 17p/litre.  

Even so, many of our local farmers are receiving only around 22 or 23p/litre which is well below the average cost of production, resulting in widespread financial problems.

But, unlike other agricultural sectors where the value of the product being produced is similar for most farmers in that sector, the price dairy farmers are paid for their milk varies widely, being dependent on the milk supply contract any particular farmer has been able to secure.  As a result there are dairy farmers on supermarket aligned contracts who are still receiving around 30p/litre which is almost twice as much as those on the worst contracts.  

This means that the fortunes of two seemingly similar neighbouring dairy farmers can vary widely but in reality the majority are not on the best contracts and are suffering badly.  Unfortunately there is little sign that prices will improve dramatically in the short to medium term and so the gloomy theme of 2015 seems likely to continue in 2016.  

The only ray of sunshine is the fall in other costs of production such as feed and fuel bills, but in many ways these simply reflect the worldwide fall in commodity prices across the board which are the main reason farmers around the world are feeling the pinch.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk