Independent schools have suffered the biggest drop in pupil numbers for five years, following years of fee increases.

There were 569,366 students in fee-paying schools in 2020-21, down from almost 577,000 the prior year – the biggest year-on-year drop since 2016, official figures published this week showed.

The drop comes despite public schools increasing fees by just 1.1pc this year, with some even offering fee refunds or discounts because of lockdowns. It is the smallest rise ever recorded by the Independent Schools Council trade body. Fees rose by almost 10pc in 2004 alone, by comparison, and fee increases have far outstripped inflation over the long term.

The average annual cost of sending a child to day school now stands at more than £15,000, although prices vary widely by region and boarders pay far more.

Nearly one in three pupils now get help from their school to pay, –with more middle-class families struggling to meet the fees – up from around one in five a two decades ago. Wage growth has virtually flatlined since the financial crisis.

How can parents keep up with costs? One solution increasingly suggested by advisers is to tap into Britain’s best loved asset – the family home.

House prices are currently growing at more than 10pc a year on average, according to the Office for National Statistics, with the cost of a typical home now exceeding £250,000, up from £150,000 in 2015 – an increase of two thirds. It is why more people are using equity release to access money tied up in their homes to fund school fees, according to Clara Curtis of advisers Responsible Life.

Equity release

In the past equity release was associated with horror stories of families getting into negative equity, stung with high rates and charges or having their legacies depleted, but the options today tend to be more flexible and safe.

It differs from a typical borrowing as you are not committed to making any monthly repayments. Instead debt is rolled up and paid back once the owner dies or they move into long-term care, usually through the sale of the house. It is only an option for those aged 55 and over. A charge is placed on the home but you have the right to remain there for life.

You can either release equity as a lump sum or via instalment drawdown plans, or a mix of both.

“For school fees drawdown would most likely be suitable ,” Ms Curtis said. “Interest only applies to each instalment of equity release that is drawn down, so it can be a more cost effective way of borrowing compared to taking it all in a lump sum. You can cover the first few years and then draw down again to pay further fees. Interest rates at the moment are very low, starting at 2.76pc and are fixed for life.”

Lenders will also allow ad hoc repayments, which can help to reduce the overall debt that needs to be paid back. “No negative equity” guarantees mean you cannot owe more than the property is worth and borrowers can ring-fence money to be passed down, so the debt does not completely erode their legacy.

Remortgage

Another option is a straightforward remortgage. Oliver Barnett of private bank Weatherbys said: “You will need to have some sort of income to manage the monthly repayments. It is not without its risks and could become unaffordable in the long run as fees rise.

“But it can be a useful short-term cash tool. For example, grandparents looking to downsize in five years’ time could remortgage now while rates are low to release funds for fees, then repay the loan when they move.”

Jason Hollands of advisers Tilney said adding to your monthly outgoings with debt to cover fees was risky. “Paying school fees out of taxed income is a really big ask, even for high earning families, so those contemplating independent schooling really do need to plan years ahead, for example by investing in Isas or establishing a trust, rather than landing themselves in a pay-as-you-go situation,” he said.