Aside from the obvious risks of leaving retirees out of pocket at a time when the UK is facing a major pensions crisis, the proposed scheme raises more questions than it answers about how it will work in practice.
Clearly, anything which looks to help first-time buyers onto the property ladder and in doing so provides a boost to the housing market should be encouraged, but the scheme seems to present more problems than it solves.
How, for example, in the instance that a child or grandchild defaults on their mortgage will lenders access the guaranteed ‘lump sum’ if the parent or grandparent has not reached retirement age? And will mortgages using ‘pensions for property’ have to make assumptions about future fund growth in order to know what the ‘lump sum’ will be?
As with many schemes of this ilk, there is also the distinct possibility that first-time buyers with wealthier parents or grandparents, who have bigger pension pots, will have more opportunity to benefit.
This is clearly contrary to the Liberal Democrats’ target market for the scheme, not to mention that wealthier parents would probably have other means of helping their children onto the property ladder in any case.
The complexities of making ‘pensions for property’ work seem almost insurmountable, not to mention contrary to the overall purpose of a pension which should look to provide individuals with the best possible level of retirement income later in life.
One might even go so far as questioning the responsibility of a policy which encourages individuals who have saved for retirement to risk a quarter of their pension pot.
That said, we do need to encourage the type of thinking behind the Liberal Democrats’ mortgage scheme, and continue to look for new ideas.
In my opinion, the single most significant problem for first-time buyers is confidence. There are currently higher loan-to-value, first-time buyer mortgages available and we need to raise public awareness that mortgages are available to help them buy their first property.
As the details emerge for this new scheme lets hope it can target a wider pool of first-time buyers and minimise risk for parents and grandparents with pensions but not forget what’s available now and the opportunities out there for first-time buyers.
Adrian Scott is mortgage services director at Connells Group