Deputy PM Nick Clegg has proposed a new scheme allowing parents to draw on their pension funds to underwrite their children’s deposits when buying homes.
The Liberal Democrat leader yesterday announced the move, which would allow up to a quarter of a pensioner’s savings to be used to guarantee the deposits, whereas the funds had previously not been accessible until retirement. In the case of default, the parent’s cash is lost.
It is hoped that 12,500 people will take advantage of the scheme, with an average of £10,000 from each pension used in the guarantees.
The policy is still in the planning stage but is hoped to generate up to £125 million to stimulate the housing market.
In recent weeks the government has tried to tackle the crisis gripping the housing sector, with measures ranging from a £10 billion credit guarantee, an assault on section 106 agreements and a £200m funding package to boost the rental sector.
But as house prices continue to spiral upwards in many parts of the country the housebuilding market has stagnated, with many would-be homebuyers unable to secure mortgage financing.
Mr Clegg told the BBC’s Andrew Marr Show: “We have thousands of young people who are desperate to get their feet on the first rung of the property ladder, but deposits have doubled and the number of young people asking help from family members to get a mortgage has doubled.”
“We are going to allow parents and grandparents to use their pension pots to act as a guarantee so their children and grandchildren can take out a deposit and buy a home.”
National Housing Federation chief executive David Orr welcomed the move, but warned that those unable to get funding from family members would need shared ownership schemes and a greater credit availability to get on the housing ladder.
He added: “The underlying problem to address is the lack of affordable new homes.
“Building more would provide thousands of homes for families, give thousands of young people in our towns and cities a skilled job and keep many family-run local firms in business.”
National Association of Pension Funds chief executive Joanna Segars meanwhile questioned the move, saying: “We wonder if this is a good solution – we need to see more detail on how this might work.
“At first glance this idea leaves us feeling slightly uneasy. A pension can only be spent once and this policy could end up leaving retirees out of pocket.
“The UK already has a serious problem with people saving too little for their old age.
“People need to keep their pension for their retirement, especially with rising longevity and the costs of long-term care.”
Council of Mortgage Lenders head of membership and external affairs Sue Anderson added to the calls for more detail.
“From a lender’s point of view, it’s an interesting idea,” she said, “because it may reduce the perceived risk, and therefore increase the perceived viability for people to whom access might be difficult.
“It gives them [banks] an extra fallback position; it gives them an extra layer of security.
“They ought to have to hold less capital against that loan, which would be really helpful, and in theory that could flow through to making their lending appetite higher.”