House prices in some of London’s most exclusive postcodes are likely to fall as Labour’s decision to impose VAT on private school fees forces more families to reconsider their housing choices.
Property experts predict that homeowners struggling with higher tuition bills will either downsize, move to more affordable areas, or opt for state schools, weakening demand in prime residential areas such as Islington, Hampstead and Chiswick.
Real estate agents and mortgage brokers warn that demand and prices for homes in these greenbelt neighborhoods are set to slow. Recent forecasts from Savills suggest that prime central London could see a 4 per cent fall in house prices this year – representing a fall of £184,000 from the current average of £4.6 million – while the outer prime London remains stable at £1.8 million. By comparison, housing hotspots outside the capital are expected to rise by 2 percent.
Lucian Cook, head of residential research at Savills, believes private school fees – which have risen sharply in line with the VAT levy introduced by Sir Keir Starmer from January 1 – will be a key factor in weakening values in affluent areas . Calculations show that average daily school fees have risen by 14 per cent, the biggest annual increase in more than 40 years, bringing costs to around £2,600 annually.
These additional costs come on top of rising mortgage rates, a phasing out of tax benefits from non-dominant countries and broader concerns about the economic outlook. Some families with tighter budgets may choose to move out of London to areas with lower house prices and cheaper private schools or good state alternatives. Others who initially planned to upsize may also pause those plans to accommodate higher school costs.
Karen Noye, mortgage expert at Quilter, notes that suburban areas and commuter areas could benefit as families seek a more affordable lifestyle. However, she warns that main central London and similar expensive enclaves could witness a surge in supply, driving prices down as sellers try to offset the financial hit of rising school fees.