Banks put the squeeze on lending to GPs
By Gareth Iacobucci
GPs who are taking out loans to invest in premises or buy into partnerships are facing crippling interest rates that could place them at serious financial risk, a Pulse investigation reveals.
Banks are in some cases offering interest rates at 10 times base rate or deals that would see annual rates climb as high as 10% if the base rate rose to historically normal levels.
Accountants warned of the dangers of signing up to ‘penal' long-term deals and said banks were raising lending rates because of the economic crisis and concerns over practices' future profitability.
The high cost of lending is set to make it extremely difficult for GPs wishing to purchase their own property, expand or re-build premises or buy into partnerships.
One GP, who wished to remain anonymous, told Pulse he had approached Natwest/RBS for a loan to buy into a partnership, and was offered base rate plus 5.5% initially and a suggested rate of 4.5% above base rate over a 20-year loan.
He said: ‘Currently, with base rates at 0.5%, I'd pay 5%. That still wouldn't cover cost-rent but would be affordable. But we all know interest rates over the next 20 years will rise.
‘If rates go back to the historic average of 5%, I could be paying back 9.5% interest. They are only lending at punitive rates despite the fact GPs are one of the safest businesses around.'
An RBS spokesperson denied the bank was lending to GPs at unfair levels: ‘We strongly advise a GPs contacts the bank to have their lending requirements reviewed. NatWest and RBS are fully committed to helping customers overcome the challenges of trading in an economic downturn.'
Bob Senior, vice-chair of the Association of Independent Specialist Medical Accountants and a partner at accountancy firm Tenon, said bank lending deals had become much tougher because of doubts over future profit margins.
‘Some lenders are looking for very penal rates,' he said. ‘GPs have always been regarded as a very safe investment, but margins that were previously attractive are not commercially sustainable in the banks' eyes under the current circumstances.'
Mike Gilbert, a partner at RMT accountants and business advisers, said while some banks such as Lloyds were pegging back interest rates, others like RBS and GPFC were ‘seeing this an opportunity to increase rates'.
One accountancy firm dealing with a number GP clients reported Lloyds was currently offering the most competitive rates of 2.25%, with RBS the highest at 4.8%.GP credit crunch: bank rates are crippling finances GP credit crunch: bank rates are crippling finances