Does private school fees affect our borrowing capacity?

You earn $150,000.

Your partner earns $130,000.

The kids are in private school and you're paying $30,000 a year in school fees.

On paper, a household income of $280,000 sounds pretty damn amazing.

But when you start looking at buying your first or next home or even refinancing to access equity, your borrowing capacity isn't as high as you would expect.

So, do private school fees affect how much you can borrow?

Yes, they do.

Do banks count private school fees as an expense?

When assessing a home loan, lenders look at more than your income.

They also consider your ongoing living expenses and financial commitments.

APRA's residential mortgage lending guidance says a borrower's living expenses are a key part of assessing whether they can comfortably service a mortgage. Lenders are expected to consider the borrower's actual declared expenses rather than simply relying on a generic household spending benchmark when the declared expenses are higher.

Private school fees will therefore form part of the expenses considered when assessing your home loan application.

How much can private school fees affect borrowing capacity?

There isn't one universal number that applies to everyone.

Imagine two couples both earn $280,000 a year and both have two children.

One sends their children to public school.

The other spends $30,000 a year on private school fees.

Their income might be identical, but their ongoing household expenses aren't.

And $30,000 a year works out to:

$2,500 every month.

That's money that isn't available to make mortgage repayments.

Your lender will also be looking at the rest of your financial position, including things like:

• existing mortgages
• car and personal loans
• credit card limits
• number of dependants
• general household expenses
• other ongoing commitments.

So private school fees aren't assessed in isolation.

What if my child hasn't started private school yet?

This is where it's worth being upfront about your plans.

For example, your child might currently be in a public primary school but already be enrolled to start at a private high school next year.

Whether future school fees need to be factored into an application can depend on the circumstances and the lender's policy.

Trying to structure an application around expenses you know are about to change isn't a great strategy.

It's better to understand what your finances look like with the school fees included, particularly if those costs will be part of your household budget for years.

What if grandparents pay the school fees?

This can become more nuanced.

If somebody else genuinely pays some or all of your children's school fees, the way a lender treats that situation can depend on the lender, the arrangement and what can be demonstrated.

Don't assume the lender will automatically ignore the expense simply because a grandparent currently pays it.

This is one of those situations where I'd want to look at the actual circumstances before choosing a lender or working out borrowing capacity.

Why can borrowing capacity feel low even on a high income?

Because earning $250,000 or $300,000 as a household doesn't necessarily mean there's a huge amount left over every month.

Private school fees might sit alongside:

a mortgage, two children, childcare or after-school care, a car loan, credit cards and normal family living expenses.

Lenders also don't assess your proposed mortgage only at today's repayment.

APRA currently requires regulated banks to apply a minimum 3 percentage point serviceability buffer when assessing new home loan borrowers.

So if your borrowing capacity seems lower than you expected, it doesn't necessarily mean something has gone wrong.

It may simply be that the lender is looking at the complete household picture rather than just your salary alone.

Should we move our children out of private school so we can borrow more?

This isn't a decision I'd make purely for a mortgage.

For some families, private education is a priority they've deliberately built their finances around.

The more useful question is:

What can we comfortably afford while keeping the things that matter to us?

Sometimes that means adjusting the property budget.

Sometimes it means reviewing other debts or commitments.

And sometimes another lender may assess the overall situation differently.

The aim isn't to squeeze the biggest possible loan out of a bank.

It's to structure the finance around the life you still want to have after settlement.

Moneysmart also recommends being realistic about what you can afford and allowing breathing room for higher repayments and other household costs.

In Summary...

Yes, private school fees can affect your borrowing capacity.

For a family spending $20,000, $30,000 or $40,000+ a year on education, those costs can be a meaningful part of the household budget a lender assesses.

But that doesn't automatically mean you can't buy, refinance or invest.

It means the school fees need to be considered alongside your income, debts, dependants and other expenses when working out what the numbers look like.

If you're earning pretty decent money but your borrowing capacity has come back lower than you expected, click here to get in touch with Eshanee and have a chat, there's always a way!

Any information or advice contained on the April Six Pty Ltd website is general in nature only and has been prepared without considering your individual personal objectives, financial situation or requirements. Before acting or relying on this information, you must consider the appropriateness of this information with regard to your individual circumstances and objectives.

April Six Pty Ltd is a Credit Representative of Astute Financial Management Pty Ltd | Australian Credit Licence 364253

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Eshanee Collins is the founder of April Six, a Sydney-based mortgage broker for first home buyers and first-time property investors across Australia.

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