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Are self-employed parents in a scramble to offset or increase their mortgages to afford the 20% VAT raid on school fees?

Journalist: Kate Steiner-Dicks, Freelance

ended 10. July 2024

The Freelance Informer aims to inform solo self-employed business owners—including freelancers, fixed-term contractors, and micro business owners—about remortgage options and tips for managing higher private school fees (with 20% VAT) set for September 2025.

1.) Are mortgage brokers and lenders observing an increase in parents remortgaging or opting for offset mortgages to cope with these rising fees? What kind of additional borrowing amounts are we seeing? Are people likely to choose longer fixed-rate mortgages or extend their mortgage terms into their 70s or 80s?

2) Additionally, how do self-employed mortgage applicants and serving military families fare compared to salaried parents? Are they in a more precarious position to pay private school fees? What steps should they take to improve their chances of affording these fees by September 2025?

3) Lastly, is it wise to wait for potential rate drops in 2024 before exploring remortgage deals?

5 responses from the Newspage community

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Editor
Dariusz KarpowiczVerified
Director at Albion Financial Advice
1: 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. Additional borrowing amounts vary widely, but some are extending their mortgage terms to manage the costs.
2: The difference between salaried and self-employed parents isn't huge, but self-employed folks might have a slight edge as they can often have more control over their income. Serving military families face unique challenges, but everyone should focus on improving their financial stability now to better afford fees by September 2025.
3: Waiting for potential rate drops in 2024 before remortgaging might be wise, but staying on a variable rate while waiting has its own risks and costs. Balance the potential savings against the current costs to decide what's best for your situation.
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Aaron StruttVerified
Product and Communications Director at Trinity Financial
We have spoken to many parents who have called to ask if it was possible to remortgage and get a lump sum to pay the fees upfront. While many think about refinancing, they can't all bring themselves to do it.
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%.
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Editor
Darryl DhofferVerified
Founder at The Mortgage Geezer
Solopreneurs and Military Familes, 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. Maintaining meticulous bookkeeping should put you in good stead with lenders. Exploring remortgage options now will only improves your chances of affording private school fees for 2025
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Kundan BhaduriVerified
Property Developer and Portfolio Landlord at The Kushman Group
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.
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Edward Checkley0
Managing Director at Advias
The upcoming 20% VAT on school fees is causing significant concern among self-employed families with large mortgages. With mortgage costs significantly higher, this additional expense is prompting many self-employed parents to seek ways to manage the increased financial burden.

Higher-earning families often have larger mortgages, and this VAT introduction coincides with rising mortgage rates, creating an acute problem. 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.