An unexpected benefit of rising interest rates for GP practices?

GP practices owning their own premises will be all too aware of the impact that rising interest rates will have on their borrowing costs, and the increased interest costs will reduce profitability.

The impact will vary for each practice depending on the level of borrowing and whether interest is being charged at a fixed or variable rate.

There may be an unexpected benefit for some practices though. It was common in the 1990s for practices to take out fixed rate loans, often with Aviva, at rates which today look extortionate. Many practices have wanted to repay these loans but the early repayment penalty payable made this not viable.

The penalty is based on the difference between the interest the lender expects to receive over the remaining period of the loan, compared with what they could get by reinvesting the loan capital that has been repaid early.

With long term interest rates having increased in recent months, the penalty being charged for early repayment will be reducing.

If you have a loan with a high fixed interest rate, either from Aviva or another lender, now might be a good time to get a quote for the cost of early repayment as part of a refinancing exercise.

If you’ve any questions, please speak to your usual PKF Francis Clark contact or any of the members of the healthcare team below.