Using your property to pay for school fees

Using your property to pay for school fees
Inflation-busting increases in school fees mean that some parents may consider using equity tied up in their homes to help cover costs.

Since 2010, private school fee increases have averaged 3.9%, according to latest data from the Independent Schools Council (ISC). Fees have risen by 3.7% this year compared with 3.4% in 2018.

Prices vary widely depending on the school and region, but currently average £4,763 a term for day pupils, rising to £11,565 a term for those boarding. That’s equivalent to nearly £35,000 a year for a family with one child, or £70,000 for those with two children.

These eye-watering sums mean that even those on high incomes can struggle to cover costs, and paying private school fees may also restrict the amount that you can borrow when you purchase or remortgage a property.

Here’s what you need to know.

How school fees affect your mortgage

When you apply for a mortgage, most lenders will include school fees as a fixed outgoing in their affordability calculations, which can have a big impact on the amount you’re able to borrow.

There are, however, a few which don’t include school fees as fixed expenditure, or which may be prepared to relax their criteria on a case by case basis.

Parents may be able to borrow bigger sums if they can provide evidence that their child or children won’t be educated privately right up until the age of 18, perhaps for example, because they plan to go to a state sixth form college at the age of 16.

Options for parents wanting to use their property to help cover school fees

There are options available for parents who are thinking of using their homes to help them pay for school fees - provided they’re able to meet lenders’ affordability criteria.

• Remortgaging

Remortgaging to borrow extra cash could enable parents to pay for school fees outright. Some schools offer a discount if fees are paid up-front, so it’s worth checking if the school you are considering does this.

Remember that unless you’re planning to extend the term of your mortgage, remortgaging to release additional funds to pay for school fees is likely to mean higher monthly payments, so you’ll need to be certain you can afford these.

Any additional borrowing will always be released in a lump sum, even if you plan to pay the fees gradually rather than in advance. Interest will be payable on the extra amount borrowed from day one.

• Using an offset mortgage

With this type of mortgage, any savings you have are offset against the amount you borrow, so can be very tax efficient.

That means parents who are borrowing extra money for school fees could keep these funds in their offset savings account until the money is needed.

If you are considering an offset mortgage, bear in mind that the choice of deals is relatively limited compared to standard mortgages, and rates are often slightly higher.

Do plenty of research

Using your mortgage to release extra cash to pay for school fees requires careful planning, so it’s vital for parents to do plenty of research before proceeding, and to consider carefully whether they’ll be able to afford potentially higher monthly payments.

The mortgage options available to you will depend on your individual circumstances, such as your income, how much extra you need to borrow, and lenders’ affordability calculations. The level of equity you own in your property also plays an important role – the more you have, the more likely you are to be able to borrow the additional funds you need.

Seek professional advice from a broker if you’re considering remortgaging to pay for school fees. They will be able to recommend the best options for you based on your specific circumstances.

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