School fees VAT hike: Self-employed parents scramble for mortgage solutions to pay private school bills
The impending 20% VAT increase on private school fees, set for September 2025, has ignited a wave of concern among self-employed parents. With mortgage rates already elevated, this additional financial burden has prompted many to explore remortgaging or offset mortgage options to cope with the rising costs. We asked mortgage and financial experts for some suggestions
Mortgage trends impacted by expected school fee rises
Mortgage brokers and lenders are reporting an increase in parents seeking to remortgage or use offset mortgages to manage the escalating school fees. “We’re definitely seeing an uptick in parents remortgaging or opting for offset mortgages to handle the rising school fees and the overall cost of living crisis,” confirms Dariusz Karpowicz, Director at Albion Financial Advice, courtesy of the NewsPage Agency.
While additional borrowing amounts vary, some parents are considering extending their mortgage terms to mitigate the financial strain.
Edward Checkley, Managing Director at Advias, highlights the particular challenges faced by higher-earning self-employed families with large mortgages: “The upcoming 20% VAT on school fees is causing significant concern among self-employed families with large mortgages.”
Having two children in private schooling does mean remortgaging can give you some breathing space. Aaron Strutt, Product and Communications Director at Trinity Financial, explains a recent scenario:
One of our clients did remortgage to pay the fees for two of his kids. He wanted to spread the costs over the longer term so he didn’t need to worry as much. Banks and building societies generally issue employed or self-employed borrowers with mortgages between four and 5.5 times their salary.
They will also accept remortgaging for school fees as an acceptable reason for borrowing additional funds.Many of the people we have spoken to about remortgaging and raising funds for school fees are still on their cheap rates because they opted for longer-term fixes. We have told them that it is unlikely to make sense to remortgage and pay expensive early repayment changes. Mortgage rates are getting cheaper and five-year fixes are getting closer to 4%.
Aaron Strutt, Product and Communications Director at Trinity Financial
Self-employed vs. salaried parents: how will they pay?
While the difference between salaried and self-employed parents isn’t vast, Karpowicz suggests that self-employed individuals might have a slight advantage due to their potential for greater control over their income.
However, Darryl Dhoffer, Mortgage Alchemist (Broker) at The Mortgage Expert, emphasises the unique challenges faced by solopreneurs and military families: “Solopreneurs and Military families, including freelancers and fixed-term contractors, certainly face Olympic grade hurdles to overcome compared to salaried parents when it comes to evidence of income for remortgages.”
Dhoffer tells The Freelance Informer, “Maintaining meticulous bookkeeping should put you in good stead with lenders. Exploring remortgage options now will only improve your chances of affording private school fees for 2025.”
Self-employed company owners are taking larger salary and dividend payments to cover lifestyle costs, increasing their personal tax burden. Combined with corporation tax increases to 25% and income tax limits not adjusting with inflation, the financial squeeze on self-employed borrowers has intensified.
One strategy is raising and pre-funding school fees to avoid the added VAT. This eases immediate financial pressure and improves mortgage affordability, leading to better terms and more lender options.
Edward Checkley, Managing Director at Advias
When is a good time to remortgage?
The question of whether to wait for potential rate drops in 2024 before remortgaging is a complex one. Karpowicz suggests balancing the potential savings against the current costs of remaining on a variable rate. Aaron Strutt, Product and Communications Director at Trinity Financial, notes that mortgage rates are gradually decreasing, with five-year fixes approaching 4%.
Negotiate fees before you borrow
Kundan Bhaduri, Property Developer and Portfolio Landlord at The Kushman Group, urges parents to negotiate with their respective schools regarding the potential pass-through of the VAT increase, noting that each school’s decision will vary and may not necessarily mean they will raise fees as much as 20%.
Hold on! Each school is going to make its own decision on whether or not to pass on (if at all any) of the VAT on the fees to parents.
Some schools with large endowment trusts in place are still working on the financial plan for the next academic year.
However for many parents who are self employed this will be a critical cost factor that they should negotiate with their respective schools in the first place.
Aaron Strutt, Product and Communications Director at Trinity Financial says while many parents think about refinancing, they can’t all bring themselves to do it.
Kundan Bhaduri, Property Developer and Portfolio Landlord at The Kushman Group
Top tips for self-employed parents
- Negotiate with schools: Explore the possibility of negotiating with your child’s school regarding the VAT increase
- Meticulous bookkeeping: Maintain thorough financial records to facilitate the remortgage application process
- Explore remortgage options early: Research and compare remortgage deals well in advance to secure the best terms and watch early exit fees to see if it’s worth the switch
- Financial planning: Develop a comprehensive financial plan to manage the increased costs and ensure long-term affordability
- Professional advice: Seek guidance from financial advisors or mortgage brokers to navigate the complexities of remortgaging and financial planning
The Labour Party’s proposed 20% VAT tax grab on school fees poses a significant challenge for self-employed parents. However, proactive financial planning, negotiation with schools, and exploring remortgage options can help mitigate the impact and ensure continued access to quality education for their children.
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