UK Farmland prices surged at the fastest pace in the RICS Rural market survey’s history during the second half of 2007 but lifestyle buyers are expected to retreat as financial woes continue.

The farmland market jumped forward, with prices rising by 27.9 percent (the fastest pace in the survey’s history) compared to 22.6 percent in the first half of 2007.

Sharp increases in commodity prices have encouraged farmers to expand production and enter the market as purchasers, with demand far outstripping supply.

Increasingly, British farmers are rivalling Irish and Danish buyers in the market. However, surveyors report that proposed changes to the Capital Gains Tax regime could see conditions loosen as landowners seek to sell before the April deadline to avoid paying a potentially higher percentage of capital gains.

The net balance of surveyors expecting price rises in residential farmland fell from 60 percent to 30 percent. City bonuses are likely to be a lot lower as the credit crunch continues to hit the financial sector. Lifestyle buyers have retreated while market uncertainties continue.

The average price of arable land rose to £10,949 per hectare from £9,929 in the first half of 2007 – breaking the £10,000 per hectare barrier for the first time in the survey’s 13 year history. Price expectations for the non-residential market also rose to the highest level on record. 

RICS spokesperson, Sue Steer said:

"Rising commodity prices have resulted in a bit of a feeding frenzy for farmland as farmers compete with investors and foreign farmers for arable land. Supply may loosen in the coming months as landowners seek to offload land before the changes in the capital gains tax regime sees them out of pocket.

"However, with the credit crunch taking its toll on the city, lifestyle buyers are expected to retreat from the market leaving country living a mere dream for many. "