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The value of English farmland increased by 16% last year (from £4129/acre to £4796/acre), according to the Knight Frank farmland index, but the slide in the value of sterling meant that prices actually fell for many overseas buyers after converting their local currency into pounds.

For example, anybody backed by US dollars and buying land at the beginning of 2009 would be paying almost 15% less than they would have done at the start of 2008, taking into account exchange rates. Danish and Irish farmers, the most significant source of overseas buyers in recent years, also benefitted as the euro and Danish kroner strengthened against the pound.

However, sterling, since the beginning of the year, has started to regain some of its strength against the euro and the Danish kroner. Converted into these currencies, English farmland values fell by 13% last year, but by 20 February the pound’s rally meant the decline was only 3%. The US dollar, however, clearly remains the currency of choice for nervous international investors and has strengthened further this year against the pound.

Anybody from Denmark or the Eurozone considering buying land here could lose more of the currency exchange benefits if they delay their purchase too long. Recent economic indicators suggest the EU’s economy could shrink by as much as 2.5% this year with the pound predicted to strengthen further against the euro, according to currency experts.

The purchasing power of the euro and Danish kroner has already been affected. At the beginning of this year, €1m  would have bought 204 acres of UK land. By February 20 (assuming no change in land values) that had fallen to 184 acres. Even if overseas buyers do hold off, hoping land prices will fall further, any drops could be cancelled out by a strengthening of the pound.

Andrew Shirley, head of rural land research at Knight Frank, commented:

“A lot has been said about the positive effect of sterling’s decline on the purchasing power of overseas buyers, and that has been reflected by an upturn in the number of enquiries we have had had from Ireland this year, but it is very important to track exchange rates on a daily basis. As our numbers clearly show it cannot be taken for granted that the pound will remain weak against all currencies. Buyers from Denmark or Ireland do currently have an advantage because they can still buy more English farmland with the same amount of their own currency than they could at the start of 2008, but that benefit is being quickly eroded. In just six weeks the purchasing power of DK1m has fallen by almost three acres.

“Although the price of English farmland increased overall in 2008, it did start to weaken in the second half of the year  (see table below for regional breakdown) and many people expect values to fall further. But there is no evidence yet of a glut of forced sales that could force values down dramatically. Even if we do see values fall by a similar amount this year, that decline could very easily be cancelled out for some overseas buyers if the pound continues to gain in value.”