Savings and ISA provider Scottish Friendly has warned would-be first-time buyers that they have just months left to buy a house or risk missing out on the chance of getting on the property ladder for years to come.
In April, those entering retirement will be able to drawdown their pensions in one lump sum and Scottish Friendly says there are concerns that many of these pensioners will use the funds they have amassed to invest in the property market. This increase in demand on an already swollen property market is likely to send house prices higher, which will mean that those looking to buy a house for the first time may get priced out of the market for the foreseeable future, it warned.
Neil Lovatt, director at Scottish Friendly, said: “The baby-boomer generation has always had an unhealthy obsession with property. This has been manageable, even beneficial to the economy when people slowly climbed the property ladder. But the new pension rules will essentially bankroll a generation, allowing them to buy into an already over-inflated market in the expectation that it will help fund their retirement.
“Estate agents up and down the country are rubbing their hands in gleeful anticipation of what is about to take place. Throughout the eighties and nineties the baby-boomer generation fuelled the housing market to such an extent that property ownership is quickly becoming the preserve of the old and the rich. Now they are getting a second bite of the cherry and could well tighten their grip on the property market so much, that generations of children to come will find it difficult to buy.
“Allowing people greater control over their retirement funding should be a positive thing, but not enough is being done to batten down the hatches and protect people from the potential backlashes that these changes could bring. Those voters approaching retirement will no doubt be happy, but we should be imploring the Government to think about the impact this policy might have on the younger generation.”
The savings provider is also concerned that, as well as seeing spiraling house prices, mortgage lenders are likely to start paying less attention to the first time buyer market in favour of focusing on lower loan-to-value mortgages, which will allow them to build a less risky mortgage portfolio.
Lovatt added: “The goal for mortgage lenders during the last decade was to get people onto the property ladder. This was the case in the build up to the economic downturn, but even after this, lenders were quick to return with offers. In the last couple of months we have seen a very competitive first-time buyer mortgage market, but this is likely to change after April.
“With thousands of people gaining immediate access to cash lump sums we are likely to see improving rates in the 40-50% LTV mortgage market. These mortgages will be less risky for the banks, but it could result in first-time buyers having to build even bigger deposits to have even a slim chance of being accepted by lenders.
“The saddest aspect of all of this is that recent research shows 70 per cent of 18-34 year olds are currently putting money into savings each month, compared to just 57 per cent of those aged over 35.(1) We have a young population that understands the need to save rather than spend. Most will be doing this because they would like to own their home one day, but if more is not done to help these people, then they may never get that chance.
“Retirees also need to be wary of seeing property as the main source of funding their retirement. While tempting for many to invest in a ‘real’ asset, the simple fact is that investing in such a way will inevitably leave some pensioners high and dry. Volatility in the market and the potential to be caught in property bubbles makes it likely that we will see a large number of pensioners at risk of losing their retirement savings if the market turns against them.”
