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‘Make it easier for lenders to offer higher LTV deals’ instead of targeting pension savings – analysis

  • 07/06/2019
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‘Make it easier for lenders to offer higher LTV deals’ instead of targeting pension savings – analysis
The government would be better served pushing the FCA to make it easier for lenders to offer high loan to value (LTV) deals, rather than allowing first-time buyers to use their pension funds as a deposit, brokers have suggested.


This week housing minister James Brokenshire (pictured) suggested that first-time buyers should be able to dip into their pension pots in order to help fund purchasing a property.

Speaking to the Policy Exchange think tank, the communities secretary said: “We should be changing the necessary regulations to allow this to happen – protecting the integrity of pension investments but allowing lenders to innovate and design new products to bring this opportunity to consumers.”

The idea provoked dismay among many however, with AJ Bell senior analyst Tom Selby describing it as “ dangerous political short-termism”.


Release shackles on high LTV lending

David Sheppard, managing director of Perception Finance, warned that it was “risky” for any government that wanted to promote pension planning to also suggest the funds could be used as a deposit on a property “as it sounds counter intuitive”.

He called for the authorities to instead focus on the rules for lenders to offer at or above 95 per cent LTV, as well as the capital adequacy required in order for them to do so.

Sheppard explained: “The biggest barrier for lenders is the amount of capital they have to hold for the higher loan to value lending. If this could be improved while making sure that we do not risk another banking crisis then this would be a better solution for first-time buyers than suggesting using money that should be earmarked for the future.”

He also called for the government to review the inheritance tax set up, in order to “incentivise family members” who want to help their loved ones to purchase a property.


Stop developers sitting on land

James Mole, managing director of London Belgravia Wealth Management, said that Brokenshire’s idea was “a prime example of attempting to grab headlines”, questioning how many young people have sufficient sums in their pension pots to even make such a scheme work.

He continued: “I think the government needs to focus on getting house builders to build more property and to stop sitting on land until it increases in value.

“If I was in government I would look to deal with the lack of supply as a priority. The high prices are a consequence of this.”


Slow middle market

Stuart Powell, managing director of Ocean Finance, said that it was welcome that the housing minister was being “innovative”, but added: “We are finding that the middle section of the market is slow, however the two ends – first-time buyers and equity release – are buoyant

He suggested that if he were in the post, he would promote just how dramatically equity release has improved for borrowers over the last five years.

“If the older generation released more funds, they would either spend it which would boost the economy, or gift it to children or grandchildren to help with deposits.

“We are seeing an increasing amount of this. This can only improve matters further up the chain,” he concluded.


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