The link between top schools and the strength of house prices in the surrounding area is well established, so how could Labour’s VAT plans for private schools affect this?
Multiple studies have demonstrated the positive link between the most sought after state schools and the property prices in the catchment area, with parents – and even prospective parents – battling to secure a home within reach of the best school for their children.
One large-scale study carried out by the Department for Education in 2017 found that house prices around the top 10% of primary schools were 8% higher than in the surrounding area, while prices closes to the top 10% of secondary schools saw an additional 6.8% added to their value compared with equivalent properties further afield.
Properties close to top-performing state schools also tend to hold their value better over time, according to research, and can see stronger growth than the surrounding areas. Competition for school places can lead to bidding wars, pushing up prices at a higher rate.
What are Labour’s plans?
Labour is planning to charge VAT on private school fees, which could lead to an additional 20% for parents to pay. At present, private schools are exempt from charging VAT (value added tax) on their fees, and the change is expected to cause major disruption among many such institutions.
The plan by the new government, which is expected to be fully announced in the Autumn Budget by Chancellor Rachel Reeves, would be to scrap the current exemption as well as business rate relief, which is estimated will bring in around £1.6bn a year.
However, the Institute for Fiscal Studies (IFS) estimates the actual amount generated would be £1.3bn-£1.5bn a year, taking into account the cost of additional children switching to state schools from private ones.
With around 2,500 private schools in England, home to about 7% of all school-age pupils, this move could have a big impact on some, as some parents would no longer be able to afford the fees. This is likely to lead to an influx of new applicants in the country’s top rated state schools and grammar schools over the coming years.
House price premiums could rise by 20%
An increase in competition for the UK’s best state schools is likely in turn to push up prices in the local areas around them, as more affluent families who may not be willing or able to pay the additional school fees are likely to instead opt for the best available free schools.
Dominic Agace from estate agency Winkworth pointed out some other trends that could begin to emerge in the housing market as a result of the changes.
“Some people are downsizing to release funds to cover school fees,” he said. “We will also start to see people investing in what they would have paid in school fees into a house near a good state school.
“We will see a premium stretch to buy a house in the right location, whether that’s for primary or secondary. We could see up to a 20 per cent premium for homes in the catchment areas of good schools.
“We will also see people moving around the country to areas with good local state schools where they can still connect into London or where they will get more for their money, enabling them to still afford school fees.”
Demand will increase
He added that the pressure is on for those considering moves to within the catchment areas of the best schools to act quickly: “The schools factor is going to be a long term trend and buyers need to think about making that move now as demand will increase.”
He added: “We have already noticed competition for properties close to state schools increasing since it became fairly self-evident that Labour would have a good chance of winning the election.
“This could push prices quite a bit higher, although what people are prepared to pay will be impacted by the local market as it can’t go too much out of kilter.
“Competition for properties in those areas is intensifying and this is likely to continue in coming weeks and months.”
Top South Manchester schools and areas
Parts of South Manchester could be set to see a surge of previously privately schooled children and their families honing in, as it is home to some of the country’s top state and grammar schools.
Places like Altrincham, Sale, Trafford and Hale Barns are already particularly sought after areas in this part of Greater Manchester, while being strong investment locations thanks to their ongoing gentrification and regeneration.
In the latest Sunday Times Parent Power Guide for 2024, schools in these areas topped the tables for the north west, with a number being named as among the best in the entire country.
Altrincham Grammar School for Girls was listed as the number one state secondary school in the north west, while being number 10 in the country.
Meanwhile, Altrincham Grammar School for Boys ranked in second place, while being listed as 21st in the country. It was also named as Secondary School of the Year for Academic Performance in the North West.
Other top schools in the area were Sale Grammar School, Loreto Grammar School in Altrincham, Urmston Grammar and St Ambrose College in Hale Barns, which all made the top 10.
Cheadle Hulme High School in Stockport was named Comprehensive School of the Year in the north west.
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