Fees at UK private schools have a long history of inflation-busting price rises and this year was no different.
Though growth slowed during the pandemic, school fees increased on average by 1.1% year on year in 2021, down from 4.1% growth a year earlier, according to the Independent School Council’s annual census, which was conducted in January. That compares to a 0.7% rise in the consumer price index during the same period.
The average fee for independent schools is now £15,191 a year for day pupils and £36,000 for boarders.
Mortgage finance can provide an effective way to manage the cost of school fees. Interest rates for a range of mortgage products are at or close to all time lows and house prices are climbing at their fastest pace since 2008. So now could be an opportune moment to consider your mortgage options ahead of the September school term.
Here, we outline three types of mortgage that suit homeowners with different needs:
If you are 55 or over, a lifetime mortgage is one option to consider. This type of mortgage has increased in popularity in recent years because it enables you to access some of the equity in your home in a flexible way. Some schools will offer a discount if you pay school fees as a lump sum. Others will incentivise termly rather than monthly payments. A lifetime mortgage will give you the option of taking a lump sum, a fixed amount each month, or access to funds when needed.
This type of mortgage is also structured to help you support your children or grandchildren with their education for the long term. There is no fixed term and the lender does not expect the loan to be paid back until the youngest applicant either passes away or moves into long-term care. The mortgage is normally repaid from the sale of the property. Interest can be paid monthly or allowed to roll up if you prefer not to make monthly payments.
Headline interest rates for lifetime mortgages currently stand at 2.7% and are fixed for life. School fees will likely represent a small portion of your property’s total value and therefore will only require you to release a small amount of equity. This is more likely to mean you can secure the lowest rates available on the market.
Offset mortgages can also make school fees more manageable, if you pay them monthly or termly. An offset mortgage will allow you to link a savings account to your mortgage and offset some of the cost of your monthly mortgage payments based on those savings. For example, if you have a mortgage balance of £200,000 and savings of £50,000, you would only pay interest on £150,000 with an offset mortgage.
This is a good option if you have funds tied up in illiquid investments, or rely on commission and bonuses for a significant portion of your income. An offset mortgage will enable you to retain access to a pool of funds you can use for school fees, while cutting down on the regular cost of interest payments.
- A second home mortgage with 90 days’ to rent out
Those with the means to do so sometimes choose to 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 out 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, rather than the rental income.
There have been few better times to raise funds this way, particularly for those able to put down larger deposits. Five-year fixed rate loans at 60% loan-to-value dropped to an average 1.19% in May, the lowest they’ve ever been.