The bank of mum and dad is about to get a hefty deposit, as Nick Clegg disclosed plans to allow them access to their pensions, so that their children or grandchildren can make a down payment on a first home.
It is thought that around 250,000 parents will be able to use this money for their children, but the question is, will they want to? Under this new scheme, Clegg is proposing that workers should be able to use any lump sum element of their pension to offset against the cost of a deposit for first time buyers.
This new scheme was unveiled at the Liberal Democrat conference in Brighton this week, and the party leader Clegg estimated that an average of £10,000 could be obtained via these methods.
However, the finer details of the plan are on hold at the moment as it has yet to be agreed with the pension companies and mortgage brokers.
And there is an additional problem in that, although this would be a type of loan scheme, if their children defaulted or house prices fell, pensioners could lose out in the long term as they would not get their money back, and their pensions would be affected negatively.
A source for the Liberal Democrats said, We realise this is not going to be the right scheme for everybody, but that doesn’t mean we shouldn’t make the option available. It is about pushing innovative ideas forward to help young people get on the housing ladder.”
Whilst Clegg told delegates, “We have thousands of young people who are desperate to get their feet on the first rung of the housing ladder, but deposits have doubled and the number of people asking help from family members has doubled.” He added, “[We are] going to do something that hasn’t happened before: we are going to work out ways in which parents and grandparents [can] help their children buy a property of their own …. We are going to allow those parents and grandparents to act as a guarantee if you like so their youngsters .. can take out a deposit and buy a home.”
The pension industry however is not convinced. The Association of British Insurers (ABI) expressed concerns, with the director general of ABI, Otto Thoresen saying, “Pensions are designed to mature into a decent retirement income, not for other purposes.
Any scheme which uses pensions as a guarantee must ensure it does inadvertently not make the saver worse off when they retire.” And there is, of course, another flaw with this scheme and that is that although parents and grandparents might have the money available, they might not want to lend it out to their children.
Moreover, a quick poll conducted in the Independent newspaper showed that the majority of parents would not have that amount of money anyway.
Liberal Democrats commented that they were not sure if new legislation would be required, but hoped to push forward the scheme by 2015.
Source and Pictures Credit: The Independent