Dentists Who Invest Podcast

How The BOE Interest Rates Affect Your Practice Borrowing with Kevin Saunders [CPD Available]

• Dr. James Martin • Season 4 • Episode 434

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Wondering why your mortgage is dropping but your practice loan feels stubborn? We pull back the curtain on how commercial borrowing really works for dentists and why the base rate is only half the story. With Kevin Saunders, we map the moving parts—Bank of England base, lender margin, fix lengths, and term—so you can shape repayments that protect cash flow rather than chase a headline APR.

We start by translating the rate rollercoaster of recent years into practical choices for owners. Commercial loans are priced as base plus margin, and margins have become more competitive, often around or below 2% over base. From there we dive into the big fork in the road: fixed versus variable. Unlike mortgages, fixed commercial rates are about budget certainty, not automatic cheapness, and they’re set against the market’s view of future base. We talk candidly about break charges, why five years can feel long in business, and when a variable rate may make sense if cuts continue.

Then we compare goodwill, property, and equipment finance. Asset finance often acts like a flat, pre‑calculated cost, decoupled from base—ideal for chairs and scanners when you want simplicity. For goodwill and property, term length becomes a powerful lever. Extending from 15 to 20 or 25 years can drop monthly payments more than shaving a few basis points off the rate, which matters most in the fragile start‑up or post‑acquisition window. We run a simple example on a £500,000 loan to show how a 0.25% cut saves roughly £67 a month, useful but smaller than many expect. We also clarify tax: interest is deductible in both company and sole trader structures, but capital repayments are not, so prioritising mortgage pay‑down over commercial principal can be smarter.

By the end, you’ll know how to compare fixes and variables side by side, stress‑test your repayments, and pick a structure that buys you peace of mind without boxing you into costly break fees. If you’re planning a purchase or thinking about refinancing, this is the timely, practical guide you need to make clear, confident decisions. Enjoy the conversation, and if it helps, share it with a colleague who’s weighing their options.

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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.

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Dr James:

The Bank of England recently tentatively lowered interest rates, and a lot of us know how that affects our mortgage, but not necessarily how it affects one of our other great interest-based expenses in life, and that is our practice finance. That's what I'm joined today by Mr. Kevin Saunders. We're going to be talking about how interest rates, the Bank of England-based rate, actually interact with your practice finance, how it will affect your repayment, and what dentists can do to take advantage of the current climate. As ever, you can claim your CPD for this episode within the official Dentists who invest Smart Money Members Club. Smart Money Members Club also includes multiple mini courses and webinar series on finance for dentists, including how to become as tax efficient as possible, as well as understanding investing. All of this content counts as verifiable CPD, and you can download your certificates there and then upon completion of each lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode. Kevin, this podcast is going to be exactly what it says in the tin. How do interest rates affect our practice finance? Because I guess for a lot of dentists out there, they might think that it's very similar to how interest rates affect your mortgage. In that, whenever your fixed term, I guess, or variable term, you know, when your fixed term comes up for uh review, that you can then at that point lock in a lower rate. Does practice finance work the same? Is it different to that? How does it work?

Kevin:

Yeah, it's it's actually a very common conversation I had with dentists about the difference between um commercial finance rates and mortgage rates. Um and actually to answer it, I think it'd be useful to unpack how the commercial finance rate is made up. Because most people will understand that uh the banks lend on a variable rate, which uh which is base related. So it's generally the base rate as one element of the interest rate, and then the bank's margin as the other. The margin is um actually how they make their money. So terms of the base rate first, um, let's have a look at the history of that or the recent history. Uh obviously, it's been in the press a lot. Um, we lived through through times that yeah, unprecedented times that I hadn't seen in my own life where base rate was below 1% for 12 or 13 years. Um, and the problem is that a whole generation of dentists grew up in that period thinking that was the norm, which I guess it was for that period, but obviously historically it hadn't been um as low as that. Um I'll give an example because I had a base rate tracker mortgage, and when the credit crunch hit, I know base rate was at 5.75. Um, and that didn't feel massively high at that point, to be honest. So uh that gives you an example. Um so we were below 1%. Uh and to show you how quickly things changed, uh, and I had to look back on the history of this to remind myself, it's a useful thing to do, actually. You can search base rate histories online. Um, so we we basically the rate was already going up before the whole Liz Trust um budget. Um, and we reached middle of 2022, and that's when it first climbed to 1%. But if you look at how rapidly it changed then, so from mid-22 um up until mid-23, and supposed to one year we went from 1% to 5% on the base rate. So that was you know quite a big jump. Finance costs uh were hit uh and people's loans became much more expensive. So yeah, looking at what's happened recently, um, obviously we had a some very welcome rate cuts. I think we had four cuts in 2025, uh, and there were two cuts the year before that. So we're now down at 3.75 on the base rate. Um it's wrong to forecast. I'm talking about interest rates as a regulated activity, so you've got to be very careful what I say. But uh reading the press, it they're talking about a potential further two cuts, two quarter percent cuts uh in this year as well. Um, in my head, the way I always think about it, I always think, I think going forward's base rate will fluctuate between about three and a quarter, maybe three, uh up to about 5.75, and it will bounce around in that band. Um it looks like we're we're basically going to enter a period now where it's gonna be in the threes for for a while. Uh you know, on that will be keen, I guess, to keep it down there to try and help the economy for some time. Um so that's the base rate, and that's the the sort of recent history of that. The other side of it is the margin. Uh, the way banks work these days is they have a pricing calculator, and it depends on the term of the loan, it depends on the security, it depends on many factors that they plug into the calculator, which churns out the margin they charge on top. Um, so basically, we had a long period after the credit crunch where margins were quite high. Uh pre-credit crunch, they were historically low, they were 1%, 1.25%. And then after the credit crunch, they jumped up to in the threes for an unsecured uh goodwill loan I'm talking about now. Um and then around about 19, uh sorry, 2015, 2016, uh the rates dropped down again and they were back in the twos. And they sat there really level for a long time. Uh, but the good news is in the recent year or two, we've had cuts to those margins. And uh it's now probably more likely the rate will be something like two and a quarter or potentially below two percent over base rate, depending on the product that people take. So it's it's a really good time to be looking for finance right now. Um, so all of that leads back to your question about how commercial uh rates compared to mortgage rates. Well, it is different because uh, and I'm not an expert on um on mortgages, but you tend to find in mortgages that the variable rate is always higher than the fixed rate. Uh, and it is the bank's own variable rate that they set. Um, and so you have to keep renewing your fixed rate every time it comes up for a new with the mortgage, because otherwise you're gonna pay a hell of a lot more on the variable rate. Isn't always the case with commercial finance. Um, commercial finance fixed rates are based on the midterm view of the base rate. So at the moment, if the base rate's viewed as coming down, then the fixed rate will be set based on that. So, for example, you're I mean the rates change every day. I'm plucking figures out of the air now, but if base rate is currently 3.75, you might get um a fixture of three, three and a quarter, maybe with a bank, and then you put the margin on top. So if the margin's uh two percent on top, you would then have five to five and a quarter percent fixed rate for the next five years. So you have to try and decide in your own mind, and it is a decision for everyone, what they what you think the rate's gonna do. So if the rate's gonna go down below that and the banks usually price so that they win, uh, you may be better off on the variable rates. However, what the fixed rate gives you is it it doesn't, it's unlike mortgage, it's not the guarantee of cheaper rates compared with the variable, it's peace of mind. So you're running a business, you can set your repayments for the next five years and budget, and that is worth something itself. So it's a difficult decision. I'd say probably 80 to 90 percent of my clients will go for the variable rate, especially at the moment. Um, but then some people will look at it and they'll price everything up and say fixed rate's pretty good. You know, if rates do suddenly jump, then you know you'll be quids in. Anyone that fixed uh before that Liz Trust budget in 2022 was laughing afterwards, you know, and that that moment I talked about where rates jumped up from 1% to 5%. A lot of people have taken fixtures when they were at 1% and they they were quids in, basically. So you just never know. It's a really hard one to call. Um but what you're actually fixing with the bank is you're you're fixing the base rate and the movements on the base rate, the margin stays as it is, usually for the commitment period of the loan or the duration of the loan. So that in answer to your question is the difference between the two.

Dr James:

There we go. So, and you might have said this, but just to recap, how and apologies if I missed this part, how long is the term are the terms fixed for typically? The duration of the loan. UK Dennists, Dennist Who Invest now has an official platform where you can learn about finance and obtain UK compliant, verifiable CVD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal, and for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I've decided to offer the first month of this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast.

Kevin:

Yeah, well, so you can get a fixture for um varying lengths. So you could get a three-year fixture, five-year fixture, ten-year fixture. Um, and again, that is a personal decision. The only thing I would say, I always say to clients, five years is a long time in business terms. And going back to my days as a bank manager, every time I saw somebody fix for 10 years, they nearly always had to break the loan and pay the penalty because it's just too long. You know, you're in 10 years, you're gonna do something, you're gonna sell the practices and buy another one, you're gonna refinance, you know, you're gonna have a penalty if you break um a fixed rate. So so yeah, I generally say to clients probably better to keep to three to five years. Um but you but you have the choice, right?

Dr James:

And that's an important thing to mention because I didn't know that. So when you refinance, it has to be at the end of a fixed your fixed term.

Kevin:

Uh if you want to avoid the breakage fee, it does. But sometimes circumstances dictate that you need to refinance. So uh I've just completed a case now where we've saved the client so much money that it's worth him breaking it, and we've added the breakage cost to the new refinance loan.

Dr James:

Interesting. So it's worth keeping an open mind and crunching the numbers.

Kevin:

Always, yeah, always worth doing that. What the banks do these days though, so generally what when we um obtain terms for clients, we will quote them based on the variable rate because we've got to keep it like for like across the banks. Uh, and also because the fixed rates change all the time. Um, and then as the uh the practice purchase or the refinance progresses, the banks these days do a really good interview with the client where they'll sit down and say, here's the costs on the variable rate, here's the fixed rates we've got, and here, you know, here's the invitation on the monthly payments. And clients then make a choice. So it's not something you need to worry about before borrowing the money, it's something you look at along along the way.

Dr James:

Interesting. Learning lots today. Okay, cool. So that was a little bit of the history of recent history of interest rates, I guess, to put things in context. A little bit of an explainer as to how finance works, practice finance works, versus what we all know from our day-to-day life, which is mortgages. I guess one thing to ask would be: are the rules broadly the same for equipment finance as well?

Kevin:

Uh equipment finance is quite different. Um, I always liken equipment finance to personal loans. If you've ever been to your bank for a personal loan, you know that what they do is let's say you're borrowing the money over five years, they'll give you a flat rate, basically. Let's say you're paying 4%, 5% on top, and they calculate the interest for the whole five years, and up front they add it onto the loan. So, and again, I'm plucking figures out of the air here, but let's say you borrow 50,000 and you're gonna pay on that another 5,000 in interest, they'll look at 55,000 divide by 60 number of payments, and you've got a fixed monthly payment. So you don't have to worry about uh interest rate fluctuations because they're not they're not variable, they're not base-related loans. They're the bank just looks at the cost of funds, adds it up front for the full five years, and that's how it is, and that's exactly how um how most asset finance or short-term finance loans work.

Dr James:

Interesting. Okay, fine. And I believe you had some worked examples for us as well.

Kevin:

Yes, so just to sort of put it in perspective, um, because it's not as much as you sometimes think when there's a quarter percent reduction that you you would save. Obviously, if you get a stream of them, it does add up to a reasonable saving. But I looked at a £500,000 loan on a 15-year term, which is a you know the average goodwill term, um, and if the base rate goes down by a quarter of a percent, that's a sort of £67 a month saving, about £800 a year. So obviously not to be sniffed at, but um, in business terms, it's not a huge amount of difference compared with maybe some of your other expenses. But obviously, if you get four quarter percent rate reductions, then uh that adds up to a whole lot more.

Dr James:

And that's half a million, you said borrowed.

Kevin:

Yeah, so that's on half a million. I'll just pluck that figure out of the air. Uh obviously, if it's a million, let'd be double that.

Dr James:

Gotcha. Well, it's it's good to know. It's good to know, right? And um you the the half a million, just to really spell this out, uh, I know that sometimes practice they borrow separately. So let's just say that's that that's that that would just be on any debt, whether it's for goodwill or whether it's for the commercial property. It's it's it's just exactly the same.

Kevin:

But that's that no, that's more goodwill, because property would be termed over a different term, which changes the rate. Strangely, actually, uh I mentioned earlier the pricing calculator. So before the pricing calculator, historically, you tend to find that banks would just price out of the air, and they would probably say, well, property loans secured by the property, so that's got a slightly cheaper rate, and a goodwill loan is unsecured, slightly higher rate. But what you tend to find these days when everything's plugged into the pricing calculator is that they're either the same rate, or the same margin on top, I'm really saying here, um, or you'll find that the goodwill loans cheaper because it's 15 years rather than 25 years. So um, and obviously we've talked about this, there are 20-year options in the middle now, but just to give you the two extremes. So you often find because of the term that the property loan is actually more expensive. So yeah, I thought just to give you an indication, I'll stick to a goodwill loan.

Dr James:

Yeah, no, that's fine. I I'm glad I asked then in that case, because I was just trying to sort of figure that out in my head. Okay, cool. So I guess the question that a lot of dentists are asking out there or might be curious to know, and I know maybe you can't give a direct answer to this, of course, because we well, we're we're gonna not contravene any FCA regulations in this podcast. A lot of people out there will be thinking themselves, just pure and simple, I want to set up a practice, is now a good time to borrow.

Kevin:

So I think it is, because um, because I I've mentioned on previous podcasts with you, the banks have had a sort of a policy war um recently. So there's some really good products out there. And as ever, it's about more than just the interest rate. Interest rates, as I mentioned, uh in terms of the margin, are as good as they've been for for you know for a decade or so, um, and base rates coming down. So I think it is a good time because it's always helpful if you buy a practice to have cheap interest rates for the first couple of years. You tend to find after that that the fees will climb up on a practice and inflation erodes the loan away and it doesn't matter quite so much. Um, but it's definitely good to look at your cash flow in the first couple of years and keep your costs as low as possible. Um so that leads on to something else I was going to talk about, um, which is people get very hung up about the interest rate, but actually it's about the monthly payment. I know you would think, well, obviously cheaper interest rate, cheaper monthly payment, but there's something else at play as well, which is the term of the loan. So another example, if we're borrowing that same 500,000, um, and again, I've made the interest rate up on this, but if we're borrowing it over 15 years, um compared to 20 years, so on 20 years you save um £640 a year um by term in the funds over 20 years. So so again, sometimes you can have a slightly higher interest rate, but if you can get all the funding put onto 20 or 25 years, your monthly payments cheaper. And that is the most important thing when it comes to business. Because don't forget you can offset the interest for tax purposes. So uh you shouldn't really be in a rush to pay down your commercial finance um and term it over as long as you can and keep it for as long as you can.

Dr James:

Nice. Offset the repayments for tax purposes only in a limited company, though, right? As a sole trader?

Kevin:

No, you can offset your interest for a tax purpose, but interest, not repayments, don't forget, it's the interest element. Um but yeah, both uh commercial interests can be offset in both entities.

Dr James:

But the repayments would also be offset in the limited company, right?

Kevin:

No, they're not. No, it's only interest only. Interest. I know it catches everyone out. Uh it's only the interest element of the loan that you can offset against tax.

Dr James:

No way. So your repayments are actually post-corporation tax in the company. Well, then you well, at the very least, it would probably be slightly more tax efficient versus paying um a higher income tax bracket, I guess, really.

Kevin:

Yeah, well, the important thing is your mortgage. Um, don't forget there's no tax relief on mortgages, on mortgage interest, rather. So I always say to clients, pay your mortgage off first, commercial finance second.

Dr James:

The more you know, the more you know. Kevin, if anybody listening today is interested in anything that you said and they're interested in figuring out what finance options are out there for them, how are they best off finding you?

Kevin:

Okay, so you can reach us on the Soroma webpage, uh, or you can email on info at Soroma.co.uk, and that reaches both myself and my associate Dan and Firon. Um, or mobile number, which is 0780-144-0622.

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Dr. James Martin

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