Pensions could secure mortgages in government plans

Struggling would-be buyers could get a helping hand on to the property ladder from their parents or grandparents, under proposals outlined by Deputy Prime Minister Nick Clegg.

The controversial plans would see young buyers able to unlock their elders’ retirement funds in order to help them secure a mortgage for their first home.

“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,” said Mr Clegg.

“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.”

While the details of the scheme have yet to be finalised, the new arrangements could come into effect as soon as 2015.

The scheme will see the lump sum element of pensions used as collateral for raising home loans. Although the lump sum would be lost if a young buyer defaults on mortgage repayments, the rest of the pension pot won’t be affected.

The proposals have raised a number of questions with industry experts, who argue that the scheme could risk pensioners’ retirement security.

Otto Thoresen, director general of the Association of British Insurers, 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.”

National Association of Pension Funds chief executive Joanne Segars added: “At first glance this idea leaves us feeling slightly uneasy.

“A pension can only be spent once and this policy could end up leaving retirees out of pocket. The UK already has a serious problem with people saving too little for their old age.”

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