A call by the housing minister for first-time buyers to be allowed to use their pension pots to fund a deposit to buy their first home has drawn widespread criticism.
In a speech delivered in London on Monday morning, housing secretary James Brokenshire suggested first-time buyers could use their pension savings for a deposit on a property.
Mr Brokenshire said: “We should be looking at allowing an individual to use part of their pension pot as a deposit on a first-time home purchase.
“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.
“It seems rather obtuse that we would deny people the opportunity to do this.
“Not the fund’s, not the state’s, it’s yours and the next Conservative government should free that capital up and trust the individual to make the choice for themselves.”
Rising house prices and deposits are making it increasingly difficult for first-time buyers to get a foothold on the housing ladder.
Recent research by Halifax revealed the average cost of a first-time buyer home has gone up from £153,030 to £212,473 in the last decade.
Meanwhile, the average first-time buyer deposit is now £32,841, – up by 70% from £19,364 in 2008.
On top of this, tougher affordability checks from lenders have also made it increasingly difficult for first-time buyers with smaller deposits to get on the property ladder.
The average 35 to 44-year-old has a pension wealth of approximately £35,000, Brokenshire said.
“If a couple could combine their pension wealth, both potentially using a proportion to support a deposit, this would make a huge difference to millions of lives. It would give people real choice, real opportunity.”
However, experts have slammed the proposal as “political short-termism,” claiming buyers would face a pension shortfall in retirement.
Tom Selby, senior analyst at AJ Bell, says: “This idea smacks of dangerous political short-termism.
“While the housing market clearly has its problems – particularly for first-time buyers who might struggle to afford the sizeable deposits now demanded by lenders – allowing people to raid their pensions is not a sensible answer.
“Chronic undersaving for later life is one of the biggest challenges facing society today, so a proposal which encourages people to drain their pension pots risks making this problem even worse.”
Steven Cameron, pensions director at Aegon, adds: “There is merit in looking at how to make housing and pension policy work together, and the previous Chancellor attempted this with the Lifetime Isa which offers a tax incentivised vehicle to save for either a first house deposit or for retirement.
“But the same money can’t be used twice and there’s a huge risk that offering early access to pensions to pay house deposits will be a far too tempting ‘bird in the hand’ offer.
“Those in a hurry to get on the housing ladder could face long term regrets in retirement as money built up at younger ages in pensions are particularly valuable as they have far longer to benefit from investment growth.”