The Ipswich Building Society has given its view on the recently floated idea of allowing first time buyers to use their auto-enrolment pension contributions as a mortgage deposit.
Guy Opperman, the Parliamentary Under-Secretary for the Department for Work and Pensions, recently suggested that auto-enrolment pensions contributions could be accessed by first time buyers as a deposit for a mortgage.
Charlotte Grimshaw, the Ipswich Building Society’s head of mortgage sales, said: “With the average asking price of homes hitting a record high of £323,530 according to Rightmove data released this week, first time buyers could be forgiven for thinking it is an impossible aim to get onto the housing ladder. However, with government initiatives such as the current stamp duty holiday and the former help to buy scheme, it is clear there is an emphasis on supporting people into home ownership.
“This latest idea is very much still at the concept stage and we would be interested to learn more about how it could work. As with any incentive, would-be borrowers should review their individual circumstances and weigh up what’s best for them, and could consider seeking independent financial advice.
“First time buyers continue to face a difficult market and would do well to continue to build up a deposit for their first property, whilst remaining practical about what their first home should achieve – it may be more realistic to get a step on the ladder by first purchasing a smaller property or one in an alternative, cheaper location rather than automatically aiming for the house of their dreams by dipping into their pension.
“This is especially true when we consider that a 90% LTV mortgage for the aforementioned ‘average’ house, would set someone back over £32,000. Based on UK average wages, a person in their twenties who has worked full time over the past eight years and made the minimum auto-enrolment pension contributions would currently have around £4,000 in their pension pot – an amount dishearteningly below the number they would need for a 10% deposit, even if there are joint buyers.
“It’s certainly an interesting concept, but it’s one that’s unlikely to help many of today’s twenty and thirty-something first time buyers. If young adults were aware that their pension contributions could be used in such a way, they might be more incentivised to contribute a higher percentage of their earnings above and beyond the current minimum requirement, meaning it could be a scheme that has a more significant impact five to 10 years down the line.”