More parents likely to remortgage and pay school fees up front if Labour win next election

by Aaron Strutt

Apr 01 2023

School fees mortgage

How remortgaging could be the solution to rising school fees

Labour’s plans to put VAT on school fees if they are elected may well lead to many homeowners remortgaging to raise funds to pay fees in advance.

Parents with kids in private schools are already looking at ways to raise funds to make lump sum payments in preparation for a change in government. This is thought of as a possible way to avoid the fee hikes.

School fees have already increased in recent years and VAT on top of their existing payments would make them unaffordable for many.

How school fees affect your mortgage and the amount you can borrow

When you apply for a mortgage virtually all banks and building societies include school fees as a fixed outgoing in their affordability calculations. This tends to have a significant impact on the amount you’re able to borrow.

Lenders use different affordability calculations to determine how much applicants can borrow for a mortgage. Some will provide 4.5 or five times single or joint income mortgages, while others offer 5.5 times salary mortgages for higher earners and professionals. 

Some banks will ignore school fees for affordability purposes if they are due to end soon or if they are paid by a family member. 

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

There are options available for parents considering using their homes to help them pay school fees - provided they can meet lenders’ affordability criteria:

•  Remortgaging to cover school fees

Remortgaging to borrow the funds to pay school fees with cash is a way for some parents to pay for school fees outright. 

Banks and building societies will want to know if you are capital raising when you remortgage, and they have a list of acceptable reasons like paying for a refurbishment or a new car. School fees are likely to be a good reason and accepted for capital raising as part of the remortgage process.

If you have time to run on your existing fixed or tracker mortgage, then you may well have a really competitively priced deal that you want to keep. It also probably has early repayment charges which means remortgageing now is not an option withing paying a large exit fee.

If you are early repayment charge-free, then it is easier to switch lenders.

• Further advances

Further advances are typically taken by homeowners who are on a fixed or tracker rate that has early repayment charges.

Applicants borrow more money against the value of their home, and the additional borrowing is secured against their existing mortgage.

Further advance applications will not typically be permitted within six months of completion of the original mortgage, and a maximum of two other advances are typically allowed in 12 months.

The minimum further advance loan amount is often £10,000 and up to a maximum of 85% loan-to-value. 

• Using an offset mortgage

Offset mortgages allow borrowers to raise additional cash and keep the funds available. With this type of mortgage, any savings you have are offset against the amount you borrow so that it can be very tax efficient.

Parents borrowing extra money for school fees could keep these funds in their offset savings account until needed.

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

• Second home mortgage to cover costs 

Those with the means to do so sometimes purchase a second home close to their child’s school. 

Under the terms of a second home mortgage, some lenders will allow you to rent the property for ninety days a year to recoup some of the costs, should you choose to split your time between your properties based on school term dates and holidays.

A second home mortgage can require as little as a 10% deposit, and the affordability checks will be based on your income and overall debt rather than the rental income.

Call Trinity Financial on 020 7016 0790 to secure a school fees mortgage or book a consultation

The information contained within was correct at the time of publication but is subject to change.

Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments on your mortgage