We try and steer clear of politics in this Blog as it’s supposed to be about mortgage lending and all matters related. But on occasion, politicians have been known to suggest daft things that, if implemented, would have an impact on the housing market. Nick Clegg’s recent pronouncement suggesting that parents and grandparents should be dipping into their pension pots to help their children or grandchildren onto the housing ladder is a very good example of this.
There is very little detail, surprise surprise, so it is not easy to dissect exactly what is being proposed. As we understand it, Clegg is suggesting that some of the tax-free lump sum – equal to 25 per cent of the pension pot – the parent expects to take on retirement could be used as a guarantee to help a family member get a mortgage. The Lib Dems expect that only those with £40,000 or more in savings would be likely to take part. If we use a £40,000 pot as an example, that would equate to a lump sum of £10,000, so we are not talking about a great deal of money.
While £10,000 towards a deposit would no doubt be useful, what of the pensioner who is parting with a significant proportion of their retirement income? £40,000 doesn’t buy much of a pension as it is. Clegg is suggesting that even those pensioners who are not wealthy could dip into their retirement income to help out their offspring. Yet not that long ago the government was telling us that we need to save more for retirement, which is the idea behind auto-enrolment in pension schemes. Now it is being suggested that the money we do save could be used to prop up the property market.
It is all a bit confused, particularly as it is already possible to take the lump sum from the age of 55 so highly likely that many parents and grandparents are already contributing some of this towards their child or grandchild’s deposit fund.
Many people already see property as a pension, whether it’s their own home, a second or holiday home they let out, or a buy-to-let. To muddy the waters by suggesting that money saved in a pension should also be ploughed into property runs the risk of making that classic investment mistake: putting all your eggs into one basket.
More needs to be done for first-time buyers. Parents are already using savings and equity in their own homes to help with deposits. Dipping into pension pots as well? That could create a whole other host of problems.