We recently looked at a case where a farming partnership entered a 25-year fixed rate loan with Agricultural Mortgage Corporation (AMC) 10 years ago. The fixed interest rate being charged is between 5% and 6%.
The loan was for the approximate amount of £1,000,000 and it was interest only. With 15 years left to go, the redemption penalty to repay the loan is an eye-watering (wait for it) £504,000 on top of the £1,000,000 borrowed.
We raised a complaint to AMC and it has offered (due to the challenges raised) to reduce the redemption penalty markedly, but it remains a substantial amount.
AMC was, we say, negligent in selling a fixed rate loan with embedded redemption penalties of this nature and quantum to a borrower that was likely to want to retire well before the maturity date of the loan, and was only slightly less likely to die before its end date. There was very little, if any disclosure of redemption penalty costs prior to entry into the fixed rate loan, and the negotiations, from AMC’s side, were conducted by one of its ‘agents’, a land surveyor who was also negotiating the purchase of the land itself.
Talk about conflict of interest.
AMC likes to think its untouchable. As it wasn’t regulated by the Financial Conduct Authority at the time this loan was taken, it doesn’t have to answer to the Financial Ombudsman Service.
We are petitioning the Business Banking Resolution Service (BBRS) to include AMC in the list of banks and financial institutions that it will investigate if a case is brought to it. AMC’s parent, Lloyds Bank is already included, so why not AMC itself?
Incidentally, as banking experts with the tools to calculate redemption penalties and the like, we checked AMC’s redemption cost quote of £504,000, and found it to be exaggerated, unless, that is, it really believes that it can only lend to a borrower currently for 15 years at negative interest rates. If that really is the case, borrowers should flock to AMC as they could borrow £1,000,000 now, pay no interest, and only repay £900,000 in 25 years time.
In the meantime, no wonder the agricultural industry is suffering with its level of indebtedness. Paying over 5% to AMC in these times when Base Rates are 0.25% and without the ability to change the loan terms without selling the farm is crippling. Whilst we continue to hold AMC to account via complaints such as this one, with good, decent, money-saving results for farmers, we need BBRS to listen and help.
