The good news is farmers are feeling less pressure from banks compared to last year, as the outlook for the rural sector improves.
The latest Federated Farmers banking survey shows that 8.5 per cent of farmers reported coming under “undue” pressure from their bank over the past six months, down from 9.6 per cent in November last year.
Ten per cent of dairy farmers reported undue pressure, which is down from 12.8 per cent, while the drop for sharemilkers is from 15 down to 10 per cent.
Of meat and fibre and arable farmers, 6.9 per cent reported undue pressure, down from 8.2 per cent.
Hoggard said while the mortgage numbers appeared hefty, farmers were investing in a business which offered a return compared to people buying a house. But he cautioned farmers to make sure they used debt wisely and take out loans for productive assets.
“In the early days I was investing in cows, now my main assets are the land and what the animals earn off it. I’ve upgraded the cowshed, so I’m making efficiency gains.
“What I’m paying in interest on that loan is superseded by the saving I’m making with that efficiency. Without the debt I would never have got to where I am,” Hoggard said.
With many if not most farmers today, they never paid off their mortgages while they were working.
“A lot of farmers are indebted until they retire and then it’s cash flow time. If you use the debt wisely and keep it in a sensible range, I don’t think it’s such a bad thing.”
Dairy farmers, whose average mortgage is $3.7m, are much more indebted than sheep, beef and arable farmers at $2m. A sharemilker’s average mortgage is worth $910,000.
More dairy farmers (85 per cent) have a mortgage than non-dairy farmers (73 per cent).
The survey shows ANZ is the single largest lender (to almost 35 per cent of borrowers), followed by Rabobank (19 per cent), BNZ (17 per cent), ASB (15 per cent), Westpac (11 per cent) and others under 5 per cent.
The average mortgage interest rate for farmers was 5.2 per cent, unchanged from last November, while the average overdraft interest rate was 7.3 per cent, down from 7.7 per cent.
Eighty-one per cent of farmers reported being very satisfied or satisfied with their bank relationship, compared to 81.4 per cent at the last survey. Sharemilkers had the lowest level of satisfaction at 69.5 per cent, slightly up on November.
The New Zealand Bankers Association welcomed the survey results and said it demonstrated the strength of current relations between farmers and their banks.
“The consistently high bank satisfaction rating among farmers reflects the fact that banks are continuing to work closely with their agri clients. It also shows the importance of effective communication between farmers and their banks, and the need to have budgets in place, especially for those managing higher debt,” chief executive Karen Scott-Howman said.