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It looks clear that interest rates will increase in the next year. The costs to businesses of the pandemic, disruptions in the supply chain, and increasing energy costs are exerting inflationary pressure, and the strongest weapon that governments have against inflation is increasing interest rates. The long relationship that we have had with low-cost borrowing is about to end.
If we look at 30-year fixed-rate mortgages, they exceeded 10% throughout the 1980s, peaking at 18% in 1981. By 1994, the rate had fallen below 9%. In 2003 it went below 6%, by 2011 30-year money fell to below 4%, and in 2020 the rate fell below 3% for the first time ever.
Since my field is fraud prevention and investigation, why does this matter? Actually, it matters a lot.
There is a whole generation who have never known anything other than cheap borrowing, and access to low-cost money has permeated our thinking.
Low rates encourage “going big” – people buy nicer cars, bigger houses, and can afford to pay higher prices when buying practices.
Climbing interest rates will “cool off” demand for these things. Prices will stabilize or fall (which is what governments wants) but the effect on people is important.
For those with little debt or locked-in rates, the effects may not be drastic, but those with imminent renewal or floating rate debt can be in trouble. Trying to borrow against an asset that is declining in value at a higher interest rate is never easy. And when an employee’s choice is to embezzle from their boss or lose their house, some will steal.
So what should a prudent dentist do? First, make sure your own financial house is in order. If you have debt, now is a great time to lock in borrowing costs. Second, keep an eye on employees and flag those who are, or could be, pushed over the edge. And finally, take advantage of our excellent Owner Proactive Strategies offering, which is designed to eliminate many of the vulnerabilities you face and ensure that you are firmly in control of your practice finances.
If you are interested in speaking to us about protecting yourself from the coming storm, I’d love to chat.
We are Prosperident, Dentistry’s Embezzlement Experts