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

House prices are expected to fall in some of London’s most exclusive postcode areas, as Labour’s decision to introduce VAT on private school fees forces more families to reconsider their housing options.

Property experts predict that homeowners with high education bills will either downsize homes, move to more affordable areas, or choose state schools, weakening demand in prime residential areas such as Islington, Hampstead and Chiswick.

Real estate agents and mortgage brokers warn that housing demand and prices are set to slow in these leafy neighborhoods. Recent forecasts from Savills suggest that prime central London could see a 4 per cent fall in house prices this year – equivalent to a drop of £184,000 from the current average of £4.6m – while prime outer London remains Fixed at £1.8 million. In comparison, residential hotspots outside the capital are expected to rise by 2 percent.

Lucien Cook, head of residential research at Savills, believes private school fees – which have risen in line with Sir Keir Starmer’s VAT charges from 1 January – will be a major factor in dampening values ​​in affluent areas. Calculations show average daily pupil fees have risen by 14 per cent, the biggest annual jump in more than 40 years, adding around £2,600 a year to the cost.

These additional expenses come on top of higher mortgage rates, shrinking tax benefits for non-residents, and broader concerns about the economic outlook. Some families with limited budgets may choose to move outside London to areas with lower house prices, cheaper private schools or good state alternatives. Others who initially planned to increase may also pause those plans in order to combat rising school costs.

Karen Noe, a mortgage expert at Quilter, notes that suburban areas and commuter belts could benefit as families seek more affordable lifestyles. However, it warns that prime central London and similarly pricey enclaves could see an oversupply, driving down prices as sellers try to offset the financial hit caused by rising school fees.