As the summer holidays draw to a close, parents of children who attend private school will be paying their bills in readiness for the next academic term. But most parents will be shocked to discover that in doing so they could hamper their chances of getting a mortgage or simply remortgaging.
Indeed, parents who have not remortgaged in the past few years may find they can’t once school fees are factored into the equation, as the lender will deem that they can’t ‘afford’ their mortgage.
Before the Mortgage Market Review, school fees were deemed as discretionary spending but now they are regarded as committed expenditure. Whereas in the past a lender would often ignore them when working out how much a customer could borrow, now lenders factor in the cost of them over the remaining term of the child’s schooling up to age 18.
This may not be an issue if you have enough savings allocated to cover school fees. But it does mean planning ahead is vital. If grandparents want to leave money for the children after they die, for example, it might be prudent to get an advance on this by asking them to pay the school fees.
Some lenders would like to be more flexible but when school fees are factored into the equation, it takes the underwriters time to process and the high-street banks like to pick the lowest hanging fruit and process applications quickly. However, a good broker should be able to present the application to the bank’s credit team in a way that makes the application viable. Contact us for more information.