The air is different today and the wind sings with a new tone

Last Updated on : 1st September 2017

September is a strange month. The “dog days of August” have gone and change is happening. It is the time when our kids move up a year, move onto different schools or go on to university or college. It is a period of flux, activity and some uncertainty. Whatever the destination, there is most likely somewhere along the line going to be some form of much needed (and hopefully planned) parental financial support. It could be school fees or when we look at further education, helping with the day to day cost of living.

download The expense of going to university has been under the spotlight during the recent election and with good reason. An article by Ruth Jackson in Money week* I saw over the weekend made the point that the combined effects of rising tuition fees and chunky interest rates on student loans means that someone studying for a three year degree course and borrowing the full amount to fund it, will walk away (one hopes) with a decent degree but also upwards of £50,000 of debt. However, it is not all bad news, as student debt works very differently to the way debt repayment normally works. For a start you do not need to start paying back the debt until your earnings are more than £21,000 per annum. After that 9% of earnings will be taken, regardless of their level. After 30 years the debt is cancelled. But, as the article shows the strange quirk to the way the system works is the fact that it maybe not worthwhile repaying the debt by making overpayments. Say your graduate child earns £36,000 a year then they will make payments totalling £40,500 on a £55,000 debt over 30 years after which the debt will be cancelled.

However, a graduate in a higher paying job say at £40,000 enjoying pay rises each year of 2% above inflation would repay their entire debt within 30 years. Making an overpayment (via perhaps a planned parental contribution) makes sense as the amount of interest payable would be cut and cut significantly.

images As with most things in life….“it all depends”. It might be more valuable for our kids’ future, particularly if they are going to build a career and life in London to start saving and investing towards other goals and I suspect the big one is helping with a deposit for a house/flat. This is where the numbers become truly eye watering. Based on statistics from “Rightmove” the average price of a flat in Balham is £560,430. A 25% deposit required? Then a jaw dropping £140,107 will be needed! We are all conscious of how expensive property in London has become and the challenge of getting on the property ladder is or will be one of the key issues for many of our children. The problem may not, therefore, be just the cost of student debt but the seemingly never ending rise in property values and rents. And if our children do want to make a fulfilling life for themselves in their home city then any help financial or otherwise we can make in this direction is going to be hugely important and that typically takes planning, time and, if your are investing, getting the underlying investment strategy right which is where you need to take impartial and independent advice.

It is always a case of working out your priorities and so if you want to explore further your investment options then you can talk with Will Townrow, Partner and Investment Manager at LGT Vestra, based in London and whose family lives locally. Will has significant experience in working with families and helping them to invest for their future by managing and building investment portfolios that meaningfully help and support them meet their financial ambitions and longer-term goals.

By David Lane, Partner and Technical Director LGT Vestra.

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For more information please contact:
William Townrow, Partner LGT Vestra.