Financial pressures drive families to leave the capital's wealthiest neighbourhoods
Families in London’s wealthiest neighbourhoods may soon face difficult choices as the introduction of 20% VAT on private school fees reshapes financial priorities. Experts warn that the increased costs could drive homeowners out of prime areas like Hampstead and Chiswick, potentially cooling property prices in these affluent locations.
The new tax took effect this month and has already prompted significant hikes in tuition fees. Day pupil fees have risen by an average of 14% to £21,800 annually, while boarding fees are up by £6,200, according to the Independent Schools Council. The policy is expected to exacerbate financial pressures on families already grappling with rising mortgage rates and living costs.
Lucian Cook, head of residential research at Savills, said the tax could impact housing demand in London’s prime locations: “People who over the past 12 or 18 months have seen their mortgage costs increase will put their plans on hold to move up the property ladder and deal with school fees instead. Others for whom financial pressures are more acute may relocate to take advantage of lower house prices and to get into cheaper private schools or good state schools.”
Savills predicts that the average price of a home in prime central London, currently £4.6 million, will decline by 4% in 2025—a £184,000 drop. Meanwhile, property values in outer prime areas are expected to remain flat, holding steady at £1.8 million. In contrast, housing markets outside the capital are projected to grow modestly, with a 2% increase anticipated.
Mortgage expert Karen Noye, from wealth manager Quilter, noted that suburban and commuter areas might see increased demand as families reassess their living arrangements.
“This financial pressure is likely to prompt some parents to reconsider their living arrangements, potentially releasing equity in their properties by selling and moving to more affordable areas,” Noye said, adding that suburban markets could benefit as families seek better value while maintaining access to good transport links and schools.
The policy’s effects come amid broader challenges for London’s housing market, including higher taxes, rising mortgage rates, and changes to the non-domiciled tax regime. As financial priorities shift, experts suggest that London’s loss may be other regions’ gain, with displaced demand bolstering housing markets outside the capital.
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