By Hina Bhudia, Partner, The Private Office
Demand to raise capital secured against property tends to rise and fall with the tides of interest rates, but volatility served up by elections often provide borrowers with new incentives to borrow or pay down debt.
The Labour Party’s proposal to apply the standard 20% rate of VAT to school fees is one of those moments. I recently spoke to the Sunday Times about borrowers that have approached Knight Frank Finance to enquire about raising the capital to pay school fees many years in advance.
Borrowers can save substantial sums, even with five-year fixed rates at 5.45%. For the cheapest fee-paying school, the policy would add a cumulative £15,000 to the overall price of attendance between Year 1 and Year 13, according to analysis by the Telegraph. On the other end of the spectrum, for a girl schooling at Queen’s College, London, the extra outlay could run to £90,000.
The banks are happy to provide capital this way, though there are a few factors that borrowers should consider. Raising the loan-to-value ratio above 75% can make repayments considerably more expensive. Plus, below 75%, interest only options come into play. These products allow lump sum repayments and tend to be favoured by those that rely on bonuses or commission for meaningful parts of their income.
It's been a volatile few months for mortgage rates. The inflation narrative has lurched with each set of new figures, and it looks like we’ll be waiting until August or September for the first cut to the base rate. Should that outlook hold, mortgage rates should be fairly steady over the summer, though the lenders will continue to make tweaks to their ranges in an attempt to maintain service levels.
Engaging with the market well before you move or remortgage is always a good idea, but that’s particularly the case while so much about the outlook remains uncertain.
If you’re thinking of raising capital against your property, or would like to purchase a home, please get in touch. We’d be happy to walk you through your options.