Remortgage for School Fees

Why Parents Remortgage for School Fees

The decision to educate a child privately is a significant financial commitment that can span more than a decade. When parents choose independent schooling, they are often looking at a total outlay running into six figures per child.

Many families have substantial equity in their homes but relatively modest disposable income. Remortgaging allows them to unlock that equity and use it to fund their children's education, effectively converting a long-term asset into an immediate investment in their child's future.

Common scenarios where parents consider remortgaging for school fees include:

• Starting secondary school — when fees are typically higher and the commitment is for seven years
• Covering a temporary gap — when a change in family circumstances makes paying from income difficult
• Paying fees in advance — some schools offer discounts of 5-10% for advance payment of several terms or years
• Funding extras — school trips, music lessons, sports coaching and uniforms can add thousands to the annual bill
• Multiple children — the financial pressure increases substantially with two or more children in private education

While remortgaging can make private education financially viable, it is a decision that requires careful planning. The fees are only part of the picture — you also need to factor in the cost of the additional mortgage borrowing over the full term of the loan.

How Much Could You Release by Remortgaging?

The amount you can release through a remortgage depends on your property value, your outstanding mortgage balance, your income, and the lender's criteria.

Most lenders will allow you to borrow up to 85-90% of your property's value. For example, if your home is worth £500,000 and you have an outstanding mortgage of £250,000, you have £250,000 in equity. Borrowing up to 85% LTV would give you access to up to £175,000 in additional funds.

However, the amount you can actually borrow is also limited by your ability to afford the increased monthly payments. Lenders conduct thorough affordability assessments, taking into account your income, existing debts, living costs, and — importantly — the ongoing school fees themselves.

This creates something of a circular challenge: you are borrowing to pay for school fees, but the lender treats the school fees as an existing commitment when assessing affordability. A skilled mortgage adviser can navigate this by identifying lenders whose affordability models work best for your situation.

Some families choose to release a lump sum to cover several years of fees at once, while others prefer to remortgage for a smaller amount and top up from income. The right approach depends on your individual financial circumstances, the interest rate you can secure, and whether paying fees in advance offers any discount from the school.

It is worth getting a clear picture of the total cost of education before deciding how much to borrow. Include not just tuition fees but also uniforms, equipment, trips, transport, and any additional activities. Having a realistic total figure helps you plan more effectively.

Advance Payment Schemes and Fee Planning

Many independent schools offer fee payment schemes that can reduce the overall cost of education. Understanding these options is important before deciding how to structure your remortgage.

Composition fees (advance payment): Some schools allow you to pay several terms or years of fees in advance at a discounted rate. Discounts of 3-8% are common and can represent substantial savings over the course of your child's education. If you are planning to release a large lump sum through remortgaging, advance payment could be a cost-effective strategy.

Monthly payment plans: Most schools now offer the option to pay termly fees in monthly instalments, sometimes through a third-party provider. While this spreads the cost, there may be a small administrative charge.

Sibling discounts: Many schools offer reduced fees for second and subsequent children. If you have more than one child at the same school, this can make a meaningful difference to the total bill.

Bursaries and scholarships: Before remortgaging, investigate whether your child might qualify for a bursary (means-tested financial assistance) or a scholarship (merit-based fee reduction). Some schools offer bursaries that cover up to 100% of fees for families who meet the criteria.

If you are considering paying fees in advance with remortgage funds, compare the school's discount rate against the interest rate on your mortgage. If the discount is lower than your mortgage interest rate, you would actually be worse off paying in advance. A financial adviser can run the numbers for your specific situation.

It is also important to consider what happens if your child leaves the school before the prepaid period ends. Most schools will refund unused advance payments, but the terms and conditions vary, so check carefully before committing a large sum.

The Remortgage Process for Education Funding

Remortgaging to fund school fees follows the standard remortgage process, but there are particular points to be aware of when education is the purpose of the borrowing.

Declaring the purpose: You will need to tell the lender that the additional borrowing is for school fees. This is a well-understood and accepted purpose for most lenders, though some may want to see evidence of the fee commitment.

Affordability assessment: The lender will assess whether you can afford the increased mortgage payments alongside your other financial commitments. Be prepared to provide details of the school fees you are paying, as these will be factored into the affordability calculation.

Documentation: You will need standard mortgage documents including proof of income, bank statements, and details of existing debts. Having a fee schedule from the school can be helpful to demonstrate the planned use of funds.

Timing: School fee invoices typically arrive one term in advance. If you need funds for a specific term, start the remortgage process at least eight to twelve weeks ahead to allow for any delays.

Choosing the right deal: Consider whether a fixed or variable rate is more appropriate. Fixed rates provide certainty for budgeting alongside predictable school fee commitments. With school fees often increasing annually by 3-5%, having at least your mortgage payment fixed can reduce financial uncertainty.

Your mortgage adviser can help you find a deal that balances a competitive rate with manageable fees and the right level of flexibility for your circumstances.

Financial Risks and Considerations

Using your home to fund education carries risks that deserve serious thought before you proceed.

Long-term cost: Spreading school fees over a 20-25 year mortgage term means you will pay considerably more in total than the face value of the fees. A £100,000 school fee commitment could cost £150,000 or more once mortgage interest is added. It is crucial to understand this total cost and be comfortable with it.

Property risk: Your home is secured against the mortgage. If your financial circumstances change — through job loss, illness or other unforeseen events — and you cannot meet the increased payments, your home is at risk. This is a fundamentally different level of risk compared to paying fees from income.

Opportunity cost: Money spent on school fees through a remortgage is money that is not available for other purposes, such as your pension, other investments, or home improvements. Consider whether the educational benefits justify the financial trade-offs.

Fee increases: Private school fees have historically risen faster than inflation. If fees continue to increase, you may find that the amount you released is not sufficient to cover the full period of education, leading to further borrowing or difficult decisions down the line.

VAT on school fees: Changes to tax policy regarding VAT on independent school fees could increase costs further. It is important to build some contingency into your financial planning to account for potential policy changes.

Having an honest conversation with your partner and your financial adviser about these risks is essential. The best approach is one where you can comfortably afford the increased mortgage payments even if your circumstances change, with a contingency plan in place if they do.

Alternatives to Remortgaging for School Fees

Remortgaging is not the only way to fund private education, and it may not be the best option for every family. Consider these alternatives before committing.

Savings and investments: If you started saving or investing early, dedicated education funds may be available. Junior ISAs, investment bonds and other savings vehicles can be used to build up a school fee fund over time.

Grandparent contributions: Some families benefit from grandparents who want to contribute to their grandchildren's education. This can also have inheritance tax advantages if the contributions qualify as gifts from regular income.

School bursaries: Many independent schools have bursary funds for families who would not otherwise be able to afford the fees. Applying for a bursary is confidential and does not affect your child's place at the school.

Personal loans: For smaller amounts or shorter periods, a personal loan may be more appropriate than remortgaging. The interest rate will be higher, but you avoid putting your home at risk.

Second charge mortgage: A secured loan alongside your existing mortgage can provide funds without disturbing a competitive existing rate. This can be particularly useful if your current deal has early repayment charges.

Flexible working or additional income: Some families choose to increase their earning capacity through additional work, freelancing or career changes rather than taking on additional debt.

A financial adviser can help you evaluate all of these options in the context of your overall financial position, ensuring you choose the most suitable and sustainable approach for your family.