Is buying into cost-rent surgery a good option?
Should I buy cost-rented surgery property?
Although cost-rent funding for building surgery premises is likely to wither with the rise of PFI funding, there are many existing surgeries funded in part or in whole by this method.
With cost-rent the amount paid is related to interest rates prevailing at the time the loan was taken out. For notional rent, the amount varies according to the local rental market and is reviewed every three years. For new-build premises, notional rent is rarely high enough to fund a loan in its early years although practices usually find it is beneficial to switch from cost-rent to notional rent after a few years.
The amount of cost-rent remains the same so if interest rates fall the GP benefits financially but loses out if rates rise.
You must get expert financial advice from the BMA or an accountant specialising in general practice.
Some key points need checking. Is the value of the building now in positive equity, the current value exceeding the amount of the practice loan? Have interest rates remained stable (or fallen) since cost-rent was taken out? What will be the net cost of your loan after cost-rent and tax relief is taken into account? Would it now be advantageous to switch to notional rent?
If the first two points are affirmative and your net loan cost is under 20 per cent of the total you should be confident to buy-in for the medium-to-long term, remembering to review a potential switch to notional rent regularly.