Question of school fees to pay?

Parents of pupils starting secondary school this autumn could pay as much as £140,952 for their secondary school career.

304, 827 UK children attend independent senior schools, so with the new school term just weeks away many parents will be thinking about how they’re going to fund the fees that come with a private education for the next few years. For those without thousands in savings, or who don’t want to take on extra debt in personal loans or credit cards, the recent house price growth combined with some savvy financial know-how could provide the answer according to Charcol.co.uk, the complete mortgage service.

In 2006/7 the average fee per term for a day pupil was £2,707, and £6,712 for a boarder. This adds up to a massive £56,847 or £140,952 over the seven year duration of one child’s senior schooling. Fees rose 5.6% on 2005/6, compared to an inflation rate of 4%, which, if constant, would take the seven year figures to £67,338 and £166,967 respectively for parents of pupils starting secondary school this autumn.

Katie Tucker, product specialist at Charcol.co.uk, says: “For many parents it is likely that in the last few years the value of their house will have risen, and the value of their mortgage will have gone down. This therefore presents an opportunity to increase their mortgage as a means of releasing the cash; for those currently sitting on uncompetitive deals the monthly repayments need not change all that much.

“One option is offsetting: Intelligent Finance allows you to raise a large lump sum now and put it in a savings account next to the mortgage and opt for the ‘net payment’ option. This means not paying interest on it and just drawing funds back out of the savings account when needed.”

Intelligent Finance has a lifetime tracker of 0.34 over base rate giving a pay rate of 6.09%, overall cost for comparison 6.3% APR available for a £999 fee with a remortgage freebie of £330 towards costs.

Tucker continues, “Most mortgages have a degree of flexibility now, offering overpayments and borrow-back. This means that monthly income can still work hardest for you as it can be paid into the mortgage as a capital overpayment, but a lump sum can be borrowed back when needed three times a year. This is a great facility for coping with school fees if you move to a lender who allows you to borrow back at the original competitive rate that you agreed, such as Northern Rock, Abbey’s flexi-plus range and BM Solutions’ and Principality’s flexible product ranges.”

For many borrowers a remortgage to a simple low rate may suffice: a quarter of mortgage holders are still languishing on their lender’s Standard Variable Rate (SVR) and as such may be overpaying quite unnecessarily. A parent with a mortgage of £300,000 could save £378 a month by remortgaging from an SVR of 7.75% to a more competitive loan with a rate of 5.61%. Over seven years this would amount to a saving of £33,933 – a considerable contribution towards funding their child’s school education. Alliance and Leicester have a five year discount with a pay rate of 5.61% , overall cost for comparison 7.4% APR and arrangement fee of £999 and Norwich and Peterborough currently offers a discount for five years giving a pay rate of 5.59% Overall cost for comparison 7.2% APR with arrangement fee of £599.

A parent with a mortgage of £250,000 on SVR 7.75% with monthly payment of £1,888 could remortgage to £300,000 at a more competitive rate of anything up to 5.75% to result in monthly payments of £1,887 and a very useful £50,000 in capital. Remortgage deals are available with minimum fees.

Tucker concludes: “For those not sitting on their lender’s SVR there may still be more competitive deals which could help, so it’s worth parents seeking advice on which are best for their situation. If you are considering taking a loan or credit at all, it is almost certain that your mortgage would offer a lower rate. Almost all borrowers will be due a remortgage in the next seven years, so it is worth factoring the school fees into your medium term plans.

“If you are a parent trying to work out the sums at the moment, it is also worth speaking to your child’s school and finding out what payment methods they offer. With some schools you will have to pay the fees a term in advance, and others will allow you to pay on a monthly basis which can really help with budgeting.”