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Student Loans Company and pension funds could help homebuyers

by: Paula John
  • 06/07/2012
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A housing finance expert featured in the Times today has suggested a novel way of graduates accessing a deposit from their first home via the Student Loans Company.

Rachel Bickerton, described as a GREND (Graduate, Renting, Employed, No Deposit), is a solicitor and housing finance expert.

She does not qualify for access to any of the Government housing schemes as she earns over £60,000 a year, but at her current rate of saving (£700 a month after paying £1360 a month in rent), she will not be in a position to buy her own London flat for at least four years.

Bickerton is proposing that graduates should be allowed to redraw their paid-off loans in order to use them as deposit money, acting as revolving loans.

She said: “There would be a cost to the Government of re-lending money it had already collected. But student loans are, contrary to popular belief, subject to interest. Plus if a student has a history of being able to repay the loan once, there is a high likelihood that their employment situation is such that they will be able to do so again.”

Ray Boulger, senior technical manager at mortgage brokerage John Charcol, described the suggestion as a ‘nice idea’, but added: “I don’t believe this would be a practical solution for many people, given that most graduates pay off their loans at the minimum rate. And student loans are written off if they are not paid back after 30 years, so if the money could be re-borrowed later in life it would get extremely complicated.

“A more effective proposal, aimed at slightly older people trading up, rather than first-time buyers, might be to allow them to borrow money from their own pension funds.

“Given that most people now have money-purchase-type pensions, they would be borrowing their own money, which could enable them to access mortgages at lower loan-to-values.

“This could work if borrowers paid interest to the pension fund set at a rate lower than the marginal rate charged on mortgage borrowing at higher loan-to-values.”

Boulger also pointed out that, while Bickerton would not qualify for many shared equity schemes, both the Government NewBuy and firstbuy schemes are available to those earning more than £60,000 a year.

He added that, while she may well need a large deposit to buy in her area of North London, many first-timers set their sights a little lower and purchase first homes in more affordable areas.

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