Interest rates increase to 3% – what does this mean for dentistry?

Interest rate increase – what does it mean for dentistry?

The Bank of England has today risen interest rates to 3% amidst the growing cost of living crisis. But what does this mean for dentists and their teams?

Today’s interest rate increase marks the biggest hike in rates since 1989, except the reversed rise on Black Wednesday in 1992.

The eighth consecutive increase in interest rates, it is also the first time that is has hit 3% since 2008.

The Bank of England has announced the biggest hike in interest rates in more than three decades. The rise of 0.75 percent takes rates up from 2.25% to 3%.

So what impact will this have on dentistry? Lucas Salt from Wealthwide gives us his take:

The rate rise will impact dentists in a number of ways. It essentially means that while the cost of borrowing is rising, there is now more of an incentive to save, and dentists with business or personal savings are likely to benefit from a higher rate of return on their working capital, assuming rates continue to increase.

Dental practice owners

For dental practice owners whose premises and/or loans are on variable rates, track the base rate, or those whose fixed term deals are about to end, this will mean a considerable increase in monthly mortgage payments.

After a base rate change, your lender will write to you and let you know how you will be affected. Your mortgage contract should explain how quickly these changes should take effect.

To give an example, a 0.75% rate hike means a property owner with a £250,000 mortgage will be paying roughly £100 a month more than before the rise.

Business Savings

The rise in interest rates does present an opportunity for dentists with capital in their business accounts. The leading easy access savings account is paying 2%, with longer fixed terms providing higher interest.

Increasing costs

Dental practices are already under pressure from inflation, the increased cost of materials and staff wages. So it would seem inevitable that dentists, particularly those with variable rate loans will have to consider raising their prices so they can continue to look after their patients and maintain profits.

Future increases

Inflation is still high so there are likely to be further rate rises at the end of this year and the start of next. The Bank of England meets again on 15 December with further meetings scheduled for 02 February and 23 March.

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Steps you can take

The key takeaway here is that there is very little any of us can do about rising interest rates, inflation and the current state of the UK economy. So I encourage anyone who is feeling overwhelmed to take a step back, look at the bigger picture and take control of your finances.

  • As higher interest rates take effect, and you feel the effect of a larger monthly outgoing, you may want to consider paying down the debt. This might mean cashing in savings, extracting capital from your business (if you own one), or even selling some assets
  • Although the future is uncertain, interest rates may peak in the coming months, so think carefully about whether you are comfortable to fix at present borrowing rates. Fixing provides certainty and sometimes that is what is most important
  • It’s also important to have an emergency fund available. If you haven’t managed to build any savings in the past, I would encourage you to start budgeting now, not only will you receive a higher rate but because we can be absolutely certain that this will not be the last financial crisis we’ll have to manage during our lifetimes
  • Another really important area to review is your insurance. Home and practice insurance policies, life insurance and income protection. If your finances are shaky and you’re nervous about the future, imagine the financial consequences if something happened to you, your loved ones or your business and you weren’t adequately insured.

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