Investing for school fees

[andyb66]

I am in a position where I have 60k to invest to help pay for my two daughters school fees; they are 6 and 4 so I have a while yet

The fees for the school I am looking at will cost about 100k each for the full period that they are in the school (waiting for PH style quips about it being a "cheap" school )

My idea is to buy (or part buy) a new-ish build flat (Wiltshire area so should be possible) and invest any remaining rent after mortgage interest into an ISA of some kind (guidance needed here too please)

Does this sound a reasonable idea? Would anyone be able to give me an idea if it would give me the income needed to met the fees; obviously it would continue to give income while the girls are at school.

Bit of background. (No violins needed) I have literally come from a penny counting working class family. I am not from a world where this sort of investment and income is usual, which is why I am looking for the advice. So I may need some of the terminology explaining too me

Thanks all in advance.

Edited by andyb66 on Friday 26th June 08:27

Edited by andyb66 on Friday 26th June 08:29

[SGirl]

I can't comment on the investment angle because I don't know anything about it, but I can tell you that when I was looking round for a secondary school for our son, fees per term in our local area started at about £3500 for the cheapest school, and the most expensive I found was about £9000 per term. Those are for day pupils, boarding costs more but I haven't looked at that. The school we eventually chose gives a small discount if you pay the full year's fees up front - about £300-400 a year, I think.

You also have to factor in extras - trips, school transport, music lessons and suchlike, if you want to add those.

Schools usually offer sibling discounts too, as far as I'm aware - I seem to recall a figure of about 10% being mentioned, but we only have one child so I'm not sure. Maybe someone else can help you with that.

Hope this helps.

[andyb66]

Thank you for that, but yes I am aware of the full year and sibling discounts.

[grahamm]

our third child is in the sixth form now so we are nearly at the end while OP is just starting. The prep school and senior school we used both offered 10% discount for second child and 20% for third, but only while they were together at school, so we are paying full price for the third now.

The comment about extras is very valid. We also had to pay exam fees which are included at state schools.

I am not a financial adviser, but if I were you OP I would put your money in an ISA/savings, make regular contributions, and withdraw school fees as required, therefore smoothing the cost. I think the buy to let is something to be considered later and separately to school fees. Don't reduce your liquidity and risk being worried where the next term's fees are going to come from!

[BoRED S2upid]

£100k each ! Is that up to GCSE or A Level as well? Seems a ridiculous amount of money to me with Uni costs to think about as well.

[ATG]

What age are they going to start incurring the fees ... 11, 13?

[boxst]

Do you not have grammar schools where you live? Lots of parents here seem to invest in primary school education and private tutors to get to a good grammar school and then that is free.

[andyb66]

ATG said:

What age are they going to start incurring the fees ... 11, 13?

From age 11. Annual fee for a local school is around the 15k mark.

[theaxe]

I'm not sure you have enough time to generate that level of profit from your £60k. With the rental even if you're able to get a good level of (taxable) profit over your mortgage payments you'd be relying on it gaining a lot of (also taxable) value in a relatively short time to cover the rest.

Then there's the risk of an interest rate rise, falling property prices, vacant periods etc.

I'd get some advise on more traditional investments and then weigh up the potential risks and benefits.

Good luck!

[Zigster]

andyb66 said:

ATG said:

What age are they going to start incurring the fees ... 11, 13?

From age 11. Annual fee for a local school is around the 15k mark.

Bear in mind that's £15k pa now. The fees at my kids' school seem to be going up a lot quicker than my income is ... my income has been pretty flat for a few years now (perhaps even decreasing) yet the fees keep going up at 4% pa - make sure you factor that into your planning.

[williaa68]

Zigster said:

Bear in mind that's £15k pa now. The fees at my kids' school seem to be going up a lot quicker than my income is ... my income has been pretty flat for a few years now (perhaps even decreasing) yet the fees keep going up at 4% pa - make sure you factor that into your planning.

I think this is a very good point. When my elder niece started secondary school two years ago aged 11 her parents were given the option of paying the seven year's school fees up front, which locked in the fees and included a small (very small) discount - cost a little over £155,000! As far as I could see the only real attraction of such a scheme was to, e.g., those with rich parents who were using it for IHT avoidance and sadly we don't!

I guess in an ideal world what you would like is to generate a sufficient "pot" that you can use it to subsidise the fees that you pay. Eg if you can end up with £100k in the pot in 5 years time (which is ambitious) you and you can generate say £4k a year in income, then you will have 9 years of school fees - four years of one lot and 5 years of two. If you are lucky, your pot will probably allow you to halve the school fees - e.g. drawing down 8k a year when you have one at school and £16k when you have two (including income generated).

The key is you are going to need to generate a reasonable return above private school fee inflation between now and when your first child starts secondary school for your plan to work and that means taking some risk - equity funds of similar. I am not a financial adviser but i would start with using your ISA allowances for this year - that's £15k each for you and the wife. Same again next year and your £60k is invested. You could have a look at something like money observer for some recommended funds or portfolios. It is a complicated world - good luck!

As someone above mentioned, what a lot of people do here (Kent) is send their kids to private primaries for 3 or 4 years with the aim of passing the eleven plus and going to grammar schools. Primary schools are generally cheaper and the period is much shorter so this is more affordable. Worth thinking about if you still have selective secondary schools.

[S6PNJ]

andyb66 said:

I am in a position where I have 60k to invest to help pay for my two daughters school fees; they are 6 and 4 so I have a while yet

The fees for the school I am looking at will cost about 100k each for the full period that they are in the school (waiting for PH style quips about it being a "cheap" school )

My idea is to buy (or part buy) a new-ish build flat (Wiltshire area so should be possible) and invest any remaining rent after mortgage interest into an ISA of some kind (guidance needed here too please)

Ok, so here is my 'take' on it.

For £60k you are likely to only be able to afford one property at a decent LTV. Clearly Wiltshire is a large county and there are good and bad areas so money goes further in the bad areas and not as far in the good areas. Decide on your area then go and see as many letting agents as you can. Ask them what properties they have lots of and what they are crying out for. They are likely to have lots of 1 and 2 beds (cheaper to buy and hence get in on the BTL game) and probably less 3 or 4 beds. I'd suggest 4 beds take too long to shift and 3 beds are the sweet spot. You want to buy what they need, not what you think looks nice (within reason). I'd also suggest a flat is bad due to the standing charge which basically removes 1 months rent each year.

Buy what you can that will rent easily. Any extra you get over and above the rent (except for emergencies and ongoing maintenance eg gas safety, insurance etc) use to overpay the mortgage.

You have 5 years (and rapidly decreasing) to do this so the earlier you start, the more you stand to pay off the mortgage. When your eldest is ready for fee paying school, re-mortgage to release equity and use this money to pay your schooling fees. Depending on how much you need and when you need it, you may be able to remortgage every year or probably every other year (2 year deals?). By only taking out what you need, the mortgage interest stays as low as possible hence your money goes further. Oh, and don't forget - you only want an interest only mortgage but it needs to be flexible for you to overpay (most accept 10% without penalty).

Use the overpayment calculator so see what difference overpaying makes to the value of the remaining mortgage after 5 years and estimate the future value of the property - this will give you a rough idea of the extra capital you can pull out (don't forget - the mortgage company will want to see the rent paying 125% of the FULL mortgage interest rate, not the special deal interest rate) and it is this that will likely restrict your capital release.

Also, the mortgage interest is tax deductible as are any costs incurred in 'running' the BTL (insurance, gas safety, maintenance etc) so also make sure you are clued up here as well.

Hope this lot helps - oh and don't forget that YMMV - every situation is different - and I'm not a financial advisor, lawyer, or powerfully built director!

[sugerbear]

williaa68 said:

Zigster said:

Bear in mind that's £15k pa now. The fees at my kids' school seem to be going up a lot quicker than my income is ... my income has been pretty flat for a few years now (perhaps even decreasing) yet the fees keep going up at 4% pa - make sure you factor that into your planning.

I think this is a very good point. When my elder niece started secondary school two years ago aged 11 her parents were given the option of paying the seven year's school fees up front, which locked in the fees and included a small (very small) discount - cost a little over £155,000! As far as I could see the only real attraction of such a scheme was to, e.g., those with rich parents who were using it for IHT avoidance and sadly we don't!

Paying up front seems a very bad idea.

What happens if the school goes bust, are the funds ringfenced in a separate client account or are they just chucked into the pot to pay for things today? I know of two independent schools closing down in recent years because of a lack of funds/pupils.

What happens if your children dont progress as expected and/or want to change school?

[Zigster]

sugerbear said:

williaa68 said:

Zigster said:

Bear in mind that's £15k pa now. The fees at my kids' school seem to be going up a lot quicker than my income is ... my income has been pretty flat for a few years now (perhaps even decreasing) yet the fees keep going up at 4% pa - make sure you factor that into your planning.

I think this is a very good point. When my elder niece started secondary school two years ago aged 11 her parents were given the option of paying the seven year's school fees up front, which locked in the fees and included a small (very small) discount - cost a little over £155,000! As far as I could see the only real attraction of such a scheme was to, e.g., those with rich parents who were using it for IHT avoidance and sadly we don't!

Paying up front seems a very bad idea.

What happens if the school goes bust, are the funds ringfenced in a separate client account or are they just chucked into the pot to pay for things today? I know of two independent schools closing down in recent years because of a lack of funds/pupils.

What happens if your children dont progress as expected and/or want to change school?

We asked our school what the deal would be if we paid several years up front - the answer was no discount at all, we just locked in to today's fee levels (which I guess is effectively about a 4% pa return). Taking into account the two factors you mention, I didn't pursue that option ...

[ellroy]

Without getting too far off the topic I'd suggest OP you also look at the inflation in Private Schoole Fees in recent years.

Eye watering about covers it...

http://www.telegraph.co.uk/education/9919425/Fees-...