Paying for independent school borrowing against house?

[Pollyputthenespressoon]

I’m trying to think through options. We have the first few years school fees saved but am wondering whether it would make sense to borrow against the equity in our house to pay for future years as won’t be able to build enough savings at the same rate over the next period. We own our house outright and it’s worth around £1.5m so I’d imagine it would be 10-15% of value we might borrow.

We are new to independent schools and frankly have never had any kind of debt so this is all quite new to us. I don’t have anyone to ask in my friendship group. Are there financial advisors that help with this kind of thing?

Well? I wouldn't

Why not?

I don't understand how you can't afford the fees if you aren't paying any rent/mortgage? The average monthly mortgage cost in the UK is currently £1441.

Yes as you say we probably can save £1.5k a month but school fees are likely to rise including because of VAT so there will be a shortfall and we won’t save quickly enough. If we had a mortgage we’d repay that £1.5k but have money upfront.

As I’ve said I want to better understand options so I know what to look into. So if anyone has advice or knows of resources I could look at I’d be grateful.

No way would I go into debt to pay for school fees. If you need to, you can’t afford it.

Makes sense to borrow against your house as you don't have a mortgage. You may find if you pay all of your fees outright then you can avoid the annual inevitable increases that will come your way.

Downsize and free up 500k?

Sounds fine as you don’t have a mortgage.

If I had exhausted other options then yes I would probably do this. You wouold still have substatial equity in your house so could always sell and downsize in an emergency.
However I would try to avoid if possible as interests rates are high ish at the moment. What is your household income and how many children do you have?

Move to an area with good state schools?

Could you afford the mortgage repayments comfortably?

If so this sounds fine to me given your overall level of wealth.

If your house is worth £1.5m then I assume you live in or around London.

In [say] 10-20 years' time your kids are going to be trying to get on the property ladder themselves.

It sounds like you don't have huge trust funds set up for them or anything. £100k each in their pockets [assuming two kids] might provide them with better value for money than school fees?

Yes we’re in London earn around £150k and have the house. We’re happy with the school choice, where we live and lifestyle. The trade off is whether it makes sense to borrow and repay over time or whether there are sources of good advice on this. I don’t get why this appears to have got some people hackles up? I just want to know if there are cheaper ways of doing this I haven’t thought of.

I don't have any easy answers other than to say: plan ahead, and if you have a good state school as an option, seriously consider it.
When considering future expenses, it would be prudent to :
a) allow for 6% per year future increases in fees. that's roughly what the long run average over the last decade has been. schools are having to fund pensions and must pass the cost on to the fee payers with above-inflation rises.
b) assume further that VAT will be payable on (some portion of) fees from September 2025. Maybe not 20%, and maybe not on the full amount, but a fair bit.
This means that prices will increase roughly 50% over the next 7 years. so if your child starts senior school in September and you'd be paying e.g. 20k then by the time they're leaving you'll be paying 30k.

As for why it gets hackles up. a combination of jealousy from those who'd love to be sitting in a 1.5 million house with no mortgage, and hostility from those who are philosophically opposed to private schools and think that all who attend them are all trust fund kids.

There’s a MN wisdom about not borrowing for school fees but given your equity I think your situation is different.

I’m not really sure what advice you’re looking for. If you need to borrow to pay fees it’s not going to get cheaper than a mortgage, but you have the risk of it being secured against your home so you need to be confident about affordability. Is it mortgage advice you need?

Also, why would you be need to borrow now anyway if you have the first few years of fees saved, isn’t this a decision for later down the line?

Thanks very much for engaging @Lebr @Donotgogentle @silverbubbles . I thought I’d broken some unwritten rule without realising it!

I guess I’m trying to find out whether there are tricks and hacks around how people do this. I am trying to think ahead and work out if there is anything we should be doing now that means things will be easier down the line. School hadn’t mentioned payment in advance so it’s the kind of thing to know people have done. 😊 We can also have a prune of our outgoings because we probably would save if we were more conscious.

If we had a good state option we’d take it as we are both state educated and independent school has only been on our radar over the last 18 months. The local state school isn’t a good option and the independent school is a great fit so it seems odd to forgo it.

We’re in stable jobs (early enough in our career for promotion) with no debt, good pensions and lots of equity in our property. No massive trust funds but money in junior ISAs etc for university/ deposits when those come (little and often grandparents etc). We’re not wealthy so there’s no smugness about our position but equally I don’t feel we’re too “poor”.

I don’t think I agree with your statement OP ‘we’re not wealthy’ when you own a £1.5m house outright!! You may get some comments on that! (Good for you though need to know how you managed it!!)

If you earn £150k and have no mortgage, can't you afford school fees ?

Unless you have loads of children, I don't really understand how you can't pay for the fees out of income if you don't have a mortgage?

However, I would imagine your best bet is to talk to a financial advisor - I'm sure there are specialist advisors for independent fees...( for example, I've just googled and found several pages with advice on how to fund private education)

DH and I were both privately educated - both sets of parents strongly advised against paying fees unless we could do it easily out of income and if there really wasn't an alternative - 18 years of boarding fees (well 14 I suppose) wasn't a lot of fun for them.

You’re ahead of us op, we haven’t saved at all for fees! Planning to pay out of income.

If something goes wrong income wise we’ll remortgage, we’re in a similar-ish equity position to you.

I’m not convinced paying fees upfront is a good plan. If your dc is not happy at the school it can make moving school more tricky.

There are financial advisors to help with planning for school fees but I thought they were aimed at building up investments over a long period of time.

I’m also struggling to see how you couldn’t pay for fees out of income if you don’t have a mortgage, have £150k income with salary rises likely and already have several years saved??

Surely taking the amount for fees out of equity could be considered later if necessary?

I saved up the first four years fees before ds started in yr 7.

Then I cut back my general spending and did my best to pay fees out of regular income. It meant no holidays and keeping my car until 12 years old, no meals out etc.

The only time I called on my savings was when I was made redundant during Covid. I had to pay two terms fees and 3 months mortgage out of savings

Personally I'd make a charge on your house as the very last resort. I was of an age I could have raided my pension if necessary.

Yeh @Pollyputthenespressoon no hostility from me but if you seriously think you are "not wealthy" when you own a £1.5m house outright and more to the point have a household income more than four times the national average - with no accommodation costs to pay out of that. Yes I think you are well off. I am aware that people often say that they are struggling on what seem to be large salaries, esp if they live in London, but that's usually bc of mortgage costs being so high.

I think a financial adviser can help you see the best way forward but I would have thought you could afford school fees Unless you have four dc or something) out of your income. You must be getting at least £7k a month on a household income of 150k? School fees even in London are about £2k per month. Surely that is more than doable out of earned income?

If you have a household income of 150k and no mortgage then you can afford to pay from your income.

I can't believe you don't think you are wealthy when you have a 1.5mil house owned outright and a household income of 150k.

it makes good sense to borrow and focus on putting money into your pension because that is tax free. Imagine you borrow £250000, you could keep it as interest only and then pump up your pension through salary sacrifice then pay off the £250000 as a lump sum when you retire. I’d get professional financial advice before doing anything but worth looking at all the options.