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Pension pot scheme to help children buy a home

By Western Morning News  |  Posted: September 24, 2012

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Nick Clegg wants parents and grandparents to be allowed to draw on their pension pots to secure deposits for young family members blocked from the property ladder.

The "Bank of Mum and Dad or Nan and Grandad" plan would in theory help many first-time buyers in Devon and Cornwall, where spiralling property prices compared to wages are among the highest in the country.

But critics warned the idea, which emerged during the Liberal Democrat conference in Brighton, risked keeping house prices artificially high and would do nothing to help youngsters from poor families.

The Deputy Prime Minister also renewed his promise of a "wealth tax", though declined to detail any new measures and appeared to signal it would not come in the form of a "mansion tax" on £2 million-plus properties.

Speaking on BBC1's Andrew Marr Show from the Brighton gathering, he said the "pension from property" scheme was integral to making Britain a "fairer" society.

He said: "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 has doubled.

"So I can announce today that the Government is going to do something that hasn't happened before: we are going to work out ways in which parents and grandparents who want to help their children and grandchildren 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."

Official figures show first-time buyers in the South West have to find a deposit of more than £50,000 to climb on to the property ladder and be earning more than £40,000 a year for the mortgage.

By contrast, the average deposit needed 15 years ago was about £4,500 on an annual salary of just over £18,000.

Under the Lib Dem proposals, parents could allow their children to borrow against the lump sum element of their pension.

Liberal Democrat sources said around 250,000 people had a pension pot of £40,000, with a lump sum element of around a quarter – £10,000 – which could be used as a guarantee.

They estimate that 5% of those with a suitable lump sum would take advantage of the scheme, meaning 12,500 people could potentially benefit. The Lib Dems are confident the scheme will be in operation by 2015.

Pension providers and mortgage lenders have been sounded out about the proposals and are prepared to work with the Government on the plan, a source said.

The parent's lump sum would be at risk if the child defaulted on the mortgage repayments, but the rest of the pension would be unaffected.

Otto Thoresen, director general of the Association of British Insurers, sounded a note of caution over the planned help for homebuyers.

He said: "Pensions are designed to mature into a decent retirement income, not for other purposes. Any scheme which uses pensions as a guarantee must ensure that it does not inadvertently make the saver worse off when they retire."

Lib Dem MPs have been pushing for the controversial 1% "mansion tax" for years.

Estimates suggests second-home hotspots and country estates are among 2,300 properties in the South West worth more than £2 million.

Critics argue home-owners in the region who have lived in the same home throughout the property boom would unfairly fall within the super-tax band without their income rising by the same amount.

Asked if he believed he could persuade his Tory coalition partners to accept a form of wealth tax, Mr Clegg said: "I think there is a very considerable chance, because we have already done a lot of it, to make sure that the top pay more tax."

Pressed to provide a single example of a new measure that could be introduced. during this parliament, he conceded that "so far I have failed" to persuade the Tory leaderships to accept a mansion tax.

"But the mansion tax is not the only way in which you can make people at the top make a fair contribution to this huge national effort of balancing the books," he said.

Aides said he would insist on fresh taxes for the wealthy as the price for accepting billions of pounds of extra spending cuts when the coalition sets budgets for 2015-16.

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  • AdrianFullam  |  September 27 2012, 12:43AM

    As an enthusiastic Lib Dem, I'm afraid I have concerns about any proposals to make finance available to purchase property. Any easier or cheaper credit simply pumps up the prices, making property more unaffordable for those outside the club and making property owners richer. I favour a land tax, which would mean that residential land would be taxed. This should apply to undeveloped land (stimulating "land-banking" developers to either sell up or get building) and developed land. It should be offset by the level of occupancy of the property and phased in to allow people to adjust. This would help slash the housing problem. Any money raised should be used to fund further increases to the tax-free allowance - a superb Lib-Dem policy which allows the lowest paid to keep their hard-earned money - rewarding work, not wealth. The mansion tax is a blunt effort to go down this road, it should be more widely applied.

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  • AdrianFullam  |  September 27 2012, 12:43AM

    As an enthusiastic Lib Dem, I'm afraid I have concerns about any proposals to make finance available to purchase property. Any easier or cheaper credit simply pumps up the prices, making property more unaffordable for those outside the club and making property owners richer. I favour a land tax, which would mean that residential land would be taxed. This should apply to undeveloped land (stimulating "land-banking" developers to either sell up or get building) and developed land. It should be offset by the level of occupancy of the property and phased in to allow people to adjust. This would help slash the housing problem. Any money raised should be used to fund further increases to the tax-free allowance - a superb Lib-Dem policy which allows the lowest paid to keep their hard-earned money - rewarding work, not wealth. The mansion tax is a blunt effort to go down this road, it should be more widely applied.

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  • Stork  |  September 24 2012, 4:52PM

    The Pension Pot plan is stupid. All it's going to do is enable youngsters to pay higher prices than they would have to now, if they could afford it. Should this idea became law, then homeowners would want more for their properties because youngsters, thanks to Bank of Mum and Dad and Nan and Grandad, would have more money to pay for houses, which would inevitably increase in price, making the "affordability" situation even more worse. Dull politicians !

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  • 2ladybugs  |  September 24 2012, 11:31AM

    Instead of trying to dangle small carrots, in front of a very favoured few, who probably wouldn't bother to vote Lib/Dem anyway why not aim for something far more meaningful to most tax payers and that is GET THE PRISONS SORTED. Make them as basic, uncomfortable and inhospitable as possible so that WHEN this country gets its sentencing for offenders sorted they won't think that they are going away on holiday to a 4 star hotel. I wouldn't then object if an offender was given 5 years for for damaging cars(as long as they were made to STAY INSIDE for the full 5 years). Now if the Lib/Dems could pull something like this off (which of course they won't) I might vote for them. :((

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