Can school fees be ring-fenced for mortgage affordability?

Can school fees be ring-fenced for mortgage affordability?

Private school fees can significantly affect the maximum loan size that mortgage lenders are prepared to offer. For some high-income families, school fees are one of their largest regular financial commitments, sometimes costing tens of thousands of pounds a year.

This can create a problem when applying for a mortgage, particularly for borrowers seeking larger loans, buying expensive London homes, refinancing an existing mortgage or applying for interest-only borrowing.

Some mortgage lenders may allow school fees to be ring-fenced for affordability purposes, but this is not standard across the market. The lender, loan size, income, deposits, credit profile, available savings, family relationships, or investments will all matter. As well as the mortgage income multiples provided by banks or building societies. 

What does ring-fencing school fees mean?

Ring-fencing school fees means a mortgage lender may agree not to treat private school fees as an ongoing monthly affordability cost because the borrower has separate funds set aside to pay them.

This could include savings, investments, bonuses, family funds, or another liquid asset pool that can clearly cover future school fee liabilities.

Instead of deducting school fees from monthly affordability as usual, the lender may take the view that the fees are already accounted for. This can increase the available mortgage amount. Especially if a grandparent has offered to pay school fees, or if the school fees are due to end soon, and the borrowers have savings to cover the costs. 

Why do school fees affect mortgage affordability?

Mortgage lenders assess whether a borrower can afford their mortgage now and in the future. They look at income, debt, household bills, dependants, childcare costs, credit commitments and other regular expenditure. Lenders typically multiply single or joint incomes by between 4 and 6.5 times to calculate the maximum loan size, and then deduct monthly or annual outgoings.

Private school fees are normally treated as a financial commitment, just like nursery costs, maintenance payments, loans, credit cards or car finance.

For example, a family paying £30,000 per year in school fees may be viewed as having a £2,500 monthly commitment. That can materially reduce the maximum mortgage available, especially if the borrowers are already stretching affordability or applying for a large mortgage.

Is it easy to get a mortgage if you pay school fees?

Yes, it is possible to get a mortgage if you pay school fees, but it is not always easy.

Paying private school fees does not stop someone from getting a mortgage. Many families with children in private education successfully secure mortgages every year. However, the fees can reduce borrowing capacity because lenders need to be satisfied the mortgage remains affordable after all regular commitments are taken into account.

It is usually easier for borrowers with:

• High income
• A large deposit
• Low loan-to-value borrowing
• Strong credit history
• Limited other debts
• Significant savings or investments
• Evidence that school fees have been prepaid or funded separately
• Access to lenders with manual underwriting or large-loan teams

The challenge is that different lenders take different views. One lender may include school fees fully in the affordability calculation, while another may consider ring-fencing them if the case is strong enough.

Which mortgage lenders allow school fees to be ring-fenced?

The clearest publicly available example is NatWest / Coutts large loans. NatWest’s large-loan proposition specifically says it can consider ring-fencing private school fees, alongside other complex mortgage scenarios such as large acreage, complex income, LLP partners and interest-only borrowing.

This can make NatWest’s large-loan team useful for higher-income clients, professionals, business owners and high-net-worth borrowers whose school fee commitments reduce the mortgage amount available.

However, not all major lenders offer this flexibility.

HSBC’s High Value Mortgage Service says school fees and nursery costs cannot be ring-fenced and must be included in affordability. This means even high-value mortgage applicants may find their school fee commitments reduce the maximum loan available with HSBC.

Barclays also refers to school fees and childcare costs as expenditure within affordability, rather than setting out a public policy allowing them to be ring-fenced.

Private banks, bespoke lenders and some manual-underwriting building societies may consider school fees on a case-by-case basis, especially where clients have strong income, substantial assets or clear evidence that the fees are already covered. But this type of flexibility is usually not published as standard criteria.

School fee ring-fencing lender table

 

What evidence is needed to ring-fence school fees?

Where a lender is prepared to consider ring-fencing school fees, it will usually want a strong paper trail.

This may include:

• Bank statements showing savings set aside for school fees
• Investment statements
• School invoices
• Future school fee schedules
• Evidence of fees paid in advance
• Details of how long the children are expected to remain in private education
• Bonus history or expected bonus income
• Evidence of other assets or liquidity
• A clear broker explanation showing why the school fees should not reduce monthly affordability

The stronger the evidence, the more likely a lender is to take a flexible view.

Does paying school fees in advance help a mortgage application?

Paying school fees in advance can help in some cases because the lender may see that the liability has already been dealt with. However, not every lender will ignore the cost just because fees have been prepaid.

Some lenders will still want to understand the wider financial position, including income, savings, other debts and household expenditure. Also, if and when more school fees are due to be paid, and how long for.

For families applying for larger mortgages, it may be useful to speak to a mortgage broker before paying school fees upfront. In some cases, keeping money in a clearly identifiable account may be more helpful than spending it, depending on the lender’s criteria and the mortgage strategy.

Can school fees reduce the mortgage amount available?

Yes. School fees can significantly reduce the amount a lender is prepared to offer.

A lender’s affordability calculator may deduct the monthly cost of school fees from disposable income. This can lower the maximum mortgage, even for high earners.

This is particularly important for:

• Large mortgage applications
• Interest-only mortgages
• High loan-to-income borrowing
• Families with more than one child in private education
• Borrowers with bonuses, commission or complex income
• Self-employed applicants and company directors
• Clients refinancing after rates have risen
• Borrowers moving from a low fixed rate to a higher mortgage rate

Aaron Strutt, product director at Trinity Financial, says: “School fees can make a big difference to mortgage affordability, especially for families looking for larger loans. Some lenders will simply treat the fees as a monthly outgoing, while others may take a more pragmatic view if the client has cash, bonuses or investments set aside to cover the cost.

“NatWest’s large-loan proposition is one of the clearest examples of a lender publicly saying it can consider ring-fencing private school fees, but this type of case needs to be packaged carefully.

“Borrowers should not assume all high-street banks take the same approach. HSBC, for example, says school fees and nursery costs must be included in affordability for its high-value mortgage service. The difference between lenders can be substantial, particularly for clients seeking large mortgages in London or the South East.”

Why use Trinity Financial for a mortgage with school fees?

Trinity Financial works with high-income families, professionals, business owners, company directors and high-net-worth borrowers seeking larger mortgage loans.

Our brokers understand which lenders are more flexible with school fees, complex income, bonuses, retained profits, investment income and interest-only mortgage applications.

This can be especially important where borrowers have strong overall finances, but their mortgage affordability is restricted by private school fees, nursery costs or other large family commitments.

Trinity Financial can help assess:

• Which lenders may consider ring-fencing school fees
• Family school fee contributions
• Whether school fees should be included or excluded in affordability
• How much you may be able to borrow
• Whether a high-street lender, building society or private bank is more suitable
• How to package the mortgage application
• Whether interest-only or part-and-part borrowing is available
• How savings, bonuses or investments can support the application

FAQs

Can school fees be ring-fenced for mortgage affordability?

Yes, some mortgage lenders may allow school fees to be ring-fenced if the borrower can evidence sufficient savings, investments or other liquid assets to cover them. This can improve mortgage affordability, especially for high earners, professionals, company directors and clients seeking larger mortgage loans.

Which mortgage lenders allow school fees to be ring-fenced?

NatWest’s large-loan mortgage team publicly states it can consider ring-fencing private school fees. Some private banks and bespoke lenders may also consider this case-by-case. Many high-street lenders still include school fees as expenditure in their affordability calculations.

Does HSBC allow school fees to be ring-fenced?

HSBC’s High Value Mortgage Service says school fees and nursery costs cannot be ring-fenced and must be included in affordability.

Does Barclays allow school fees to be ring-fenced?

Barclays lists school fees and childcare costs as expenditure for affordability purposes. It does not publicly set out a standard school-fee ring-fencing policy.

Can private school fees stop me getting a mortgage?

Private school fees do not automatically stop you getting a mortgage, but they can reduce the maximum loan available. The impact depends on your income, deposit, debts, credit score, lender choice and whether the fees can be evidenced as already funded.

Is there a way around private school fees being assessed for a mortgage?

Not really. Some lenders can ignore or ringfence school fees. Higher earners can potentially borrow up to 6.5 times their salary, which means applicants with school fees may still be able to meet the lender's affordability rules. 

Does paying school fees up front help with a mortgage?

It can help, particularly if the lender accepts that the school fee liability has already been covered. However, lender policy varies, and some lenders may still include school fees in affordability.

Are school fees treated like childcare costs by mortgage lenders?

Many lenders treat school fees and nursery fees as regular expenditure. This means they can reduce disposable income and lower the maximum mortgage available.

Can high-net-worth borrowers get school fees excluded from affordability?

Some high-net-worth borrowers may be able to get school fees ring-fenced, particularly where they have substantial savings, investments or assets set aside to cover the cost. This is usually assessed case-by-case. 

Speak to a Trinity Financial adviser today

The mortgage market moves fast — and the right advice can make a significant difference to the rate and deal you secure. Get in touch with our team to discuss your options.

Call Trinity Financial on 020 7016 0790 to secure a school fees mortgage, book a consultation, or use our appointment calendar

The information contained within was correct at the time of publication but is subject to change. It is for general information purposes and is not advice.

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