Another increase to interest rates – what does this mean for dentistry?

You will have likely heard that, yet again, interest rates have gone up. The base rate is now 4.5%. This is in a bid to gain control over inflation, which now sits at 10.1% – according to the Bank of England (BoE), the target is 2%.[i] BoE expects inflation to fall this year, with the 2% target being met by late 2024 – but reports suggest that there may be more hikes to interest rates as the year progresses. How will this latest increase impact dental professionals, and the dental market?

No rest for mortgage owners  

The impact of the cost-of-living crisis and now the increase in interest rates is likely to be yet another cause for concern for the majority of dental professionals. For practice owners – who are facing increased monthly repayments as commercial mortgages are not usually fixed – this is concerning. Combined with the general costs of running a business going up, such as the cost of labour, materials, electricity and energy, then it is evident that many business owners will feel the squeeze, if they have not already. For those with variable rates on residential mortgages, in addition to those coming to the end of their fixed rate term residential mortgages, the pressures increase still.

For dental professionals on the lower end of the pay scale, these cost hikes place even more stress on their finances. On average, the standard variable mortgage rate is sitting at around 7.75%,[ii] and if this was raised by 0.25 percentage points (estimated rise for interest rates this year) to 8%, then those with a £200,000 residential mortgage and 25 years remaining may be forced to pay an additional £396 per year.

Recruitment remains a challenge

With pay and stress often being cited as reasons for a career change, this rise in interest rates may, anecdotally, prompt more dental professionals on the lower pay scale to seek employment elsewhere. This may be in the form of a new role in a different dental practice where the pay opportunities are better, or in a new field entirely. According to our most recent annual Goodwill Report for the financial year 2023, issues with recruitment are impacting market demand, even more so in rural areas where staff are much harder to source. With regards to the dental market, the lack of dentists is impacting the multiples for NHS practices, although the demand is still there.

The dental market

With the interest rate now at its highest level since 2008, those looking to acquire a dental practice may be up against higher lending rates. Our figures show that demand is still high, although, of course, prices are impacted by the increase in the cost of debt.

There has been a slight hit on the average multiple across the country, although it is worth bearing in mind that these multiples are market-wide averages and may be impacted by extreme deals. Figures show that the multiples have decreased from 8.36x in 2021 to 7.40x in 2023 – for mixed and private practices, the average multiple paid is 7.73x, with some of the biggest players in the market hitting on average around 8.73x (some are even hitting around 8.5 – 9.5x). Our figures nod towards more consolidation and a consistently robust independent market, but if inflation remains high and the BoE must continue raising interest rates to combat it, then this may start to influence the independent market. However, it will take some time before we see how the most recent hike changes market activity.

What does the next 6 months hold?

The market is still strong, but as there remains uncertainty generated by inflation and interest rates, inflation figures will be better this month as steep rises in energy are washed through the system. In some respects this masks core inflation, especially with regard to food, albeit there are green shoots emerging. Most pundits feel we are reaching the end of the road with rate rises, one maybe two more but this will all depend on how inflation plays out. As always, it is worth noting that the dental market is not fixed but changes with the times. We will keep our ear to the ground to observe any changes that occur in the meantime.

For more information contact Dental Elite. Visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900