How can I get my children on the housing ladder?
WE have seen numerous ideas coming from the UK Government regarding supporting the housing market.
The housing market – the depreciating asset that appreciates in value.
We can see why. Rising house prices give a feeling of confidence. If I am in debt for £10,000, it really hurts.
If I am in debt for £200,000 for something that could be ‘worth’ £230,000 in two years, or £400,000 in twenty years, I’m less bothered.
I’m more likely to borrow against it, or release ‘equity’ and spend it elsewhere in the economy later.
It is the oxygen of a fiery debt driven economy, and falling prices is a large, soaking wet blanket thrown on a newly lit match.
The Government have, and are, considering allowing savers access to their pensions to ‘get on the ladder’. You must remember at the end of other ladders there was a noose.
The theory from the minister was that young people saving eight per cent of their earnings would have £10,000 pension pots very quickly.
It is hard not to see some of these ideas as ‘help to sell’ rather than ‘help to buy’, a plan that supports many large house builders like that of the actual help to buy scheme rather than purchasers.
The reality is, young people do not save eight per cent in pensions. Even if they did, it would take the average earner four years to build up a pot of £10,000 - the very minimum to get onto the housing ladder using the Government 95 per cent mortgage scheme (and not allowing for the hefty house buying and fitting costs).
This idea is quite disastrous in that it doesn’t help those who have no disposable income. These are the people condemned to never ending spiraling rent.
Similarly, many of the risk properties in and around London are leasehold flats.
These are like taking a depreciating asset and doing your best to make it depreciate more. Monthly service charges and unexpected hefty bills is not attractive to any future would be purchaser.
The carrot was held out. Research was created which showed pension savers would invest more into a pension if they thought they could access it to buy a house. Of course they would.
Asked that question, the answer will always be yes, but that would leave people penniless in future years at retirement.
Remember the power of investing early in an article a few weeks back. The first five years contributions can easily make up half the final pension pot in retirement.
All evidence proves internationally that pension pots are not replenished properly if accessed earlier.
Clearly, the Government is pushing home ownership, and the move to back a 95 per cent mortgage guarantee scheme is welcomed. However, its real benefit lies in that lenders know property prices will not be under the same pandemic pressure, and some are now offering 95 per cent schemes, whilst opting not to be restricted by the Government’s scheme.
Mr Sunak, encouraged banks with the guarantee on a portion of the loans if there were losses and the top five banks moved to support it.
According to Moneyfacts, there were 391 95 per cent mortgage schemes available a year ago.
That had dropped to just 5 at the beginning of this month. The Yorkshire Building Society is returning, but not using the Government’s backing and its commercial costs.
The Yorkshire believe, and are comforted, that other lenders will now return to this 95 per cent market which in turn supports that first rung of the ladder - the first time buyer and the housing market generally. That’s good news.
As for raiding your pension? Really? That’s like taking a bite out of your daughter’s birthday cake five days before her birthday and leaving it in the sun.
Tempting at the time. A bit ‘awks’ later.
We already have the lifetime ISA. Use that. Save up to £4,000, attract a 25 per cent tax break (same as a pension), enjoy the returns, and when you are ready to buy, hey presto.
You just need to be 18-50, the exact age the pension option would be targeting.
:: Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have question on sustainable investing, call Darren McKeever on 028 6863 2692 or email firstname.lastname@example.org or visit https://www.wwfp.net/