Since the government announced it would add a 20% VAT charge to private school fees, top-rated state schools have become even more sought after. What impact has this had on the UK property market so far?
On 1st January this year, Labour phased in the end of private school ‘tax breaks’ by applying the standard 20% VAT rate to fees. From 1st April, private schools that are charities will lose their charitable business relief, which offers an 80% discount on rates they pay on their premises.
Since the announcement, some private schools have closed and have blamed the ‘tax raid’ for this. In a forecast created by Labour ahead of the change, it predicted that 37,000 pupils would leave private education, out of more than half a million children that attend. However, pupil numbers at private schools had already been falling since the pandemic.
Research by Schools Week questions whether the VAT hike is the primary cause of private school closures – but the move has certainly thrust top-rated state schools into the spotlight as an even more popular alternative.
UK property market impact
UK property market trends are influenced by a vast range of factors, from the wider economy to taxes, interest rates and overarching lifestyle changes, with the ‘race for space’ during and after the pandemic being a prime example.
For families as well as young couples, proximity to good schools (whether they be private or state) has always been a top priority. As a result, house prices in locations within the catchment areas of sought-after schools tend to be higher than the surrounding area for family homes.
From a UK property investment perspective, investors who are keen to target families as a primary tenant type can achieve greater success if they hone in on these areas, finding their property more sought after while also enjoying strong capital appreciation.
Research from Yopa last year found that homes close to Ofsted ‘outstanding’ rated schools commanded an average premium of £116,000 compared with similar properties in locations close to ‘inadequate’ rated schools.
While the Ofsted system is currently under review, the figures are a good indication of the level of demand seen close to excellent state schools – and this could be set to increase as more families look to state schools over private schools in light of the VAT change. This is likely to influence UK property market trends further.
Commenting on the latest data from February, Matt Thompson, head of sales at Chestertons, said: “In February, the UK property market saw a higher volume of enquiries from parents who are looking for a property in catchment areas of highly-rated state schools. This resulted in larger family homes attracting interest from multiple buyers.”
Moving for school
Some analysts are forecasting an increase in demand for locations close to the most highly rated state schools over the coming years, which could make these areas a key UK property investment target.
With the next change by the Labour government set to take effect in less than a month, along with deadlines for securing a place at a local school, Nigel Bishop of buying agency Recoco Property Search said: “Another wave of parents looking to move closer to state school catchment areas is inevitable over the coming weeks.
“Before the end of April, parents will need to confirm with their children’s current school whether they intend to enrol for the next academic year beginning in September. Since Labour has announced a tax levy on private school fees, we have encountered numerous parents who decided to register their children with a state school instead and, as a result, are looking to move.
“We are currently registering even more parents contacting us for exactly this reason but they are up against a much tighter deadline to find a suitable property. This has created an increased feeling of urgency with many parents willing to offer sellers above asking price to secure a property. We therefore expect to see a particularly competitive property market for larger family homes in the UK which could see house prices go up further.”
UK remains top destination for education
The UK continues to be a globally recognised location for its top education facilities, from schools through to universities. For investors in UK property – whether based in the UK or living overseas – this can be an important factor to take into account when deciding on a location.
Places like London, Manchester and Birmingham are among the top destinations for overseas students. According to the Global Education Report by Global Citizen Solutions, the UK is the number one education destination in Europe followed by Germany, France, the Netherlands and Switzerland. The UK was top-rated for post-graduation opportunities, quality of life and long-term student outcomes.
While not all UK property investors are comfortable letting to students, investing in an area with strong post-graduate job opportunities can be a key strategy to ensure high tenant demand.
