Labour’s VAT on private school fees set to cool house prices in London’s affluent enclaves

House prices in some of London’s most exclusive postcodes are tipped to fall as Labour’s decision to apply VAT on private school fees forces more families to reconsider their housing choices.

Property experts predict that homeowners grappling with steeper tuition bills will either downsize, relocate to more affordable areas, or choose state schools, weakening demand in prime residential areas such as Islington, Hampstead and Chiswick.

Estate agents and mortgage brokers warn that housing demand and prices are set for a slowdown in these leafy boroughs. Recent forecasts from Savills suggest prime central London could see a 4 per cent dip in house prices this year — equating to a fall of £184,000 on the current £4.6 million average — while outer prime London remains flat at £1.8 million. By comparison, housing hotspots outside the capital are expected to rise by 2 per cent.

Lucian Cook, head of residential research at Savills, believes private school fees — which have surged in line with a VAT charge introduced by Sir Keir Starmer from 1 January — will be a key factor in weakening values in affluent areas. Calculations show that the average day pupil fees climbed by 14 per cent, the largest annual jump in more than 40 years, adding around £2,600 annually to the cost.

This extra expense comes on top of rising mortgage rates, a winding-down of non-dom tax perks, and broader concerns over the economic outlook. Some families on tighter budgets may opt to move out of London to areas with lower house prices and cheaper private schools or good state alternatives. Others who had initially planned to upsize may also pause those plans in order to cope with higher school costs.

Karen Noye, mortgage expert at Quilter, notes that suburban areas and commuter belts could benefit as families seek more affordable lifestyles. She cautions, however, that prime central London and similarly expensive enclaves could witness a supply increase, pushing down prices as sellers attempt to offset the financial blow of spiralling school fees.

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Labour’s VAT on private school fees set to cool house prices in London’s affluent enclaves