Hunt urged to allow first-time buyers to tap pensions for house deposits

Chancellor Jeremy Hunt is being urged to allow first-time buyers to take money from their pension contributions to fund a deposit on a home.

The proposals form part of a new report sent to the Chancellor ahead of his Budget on March 6, by the all-party Institute of Housing and Finance.

The HFI says that if its advice is followed, home ownership will be within reach of tens of thousands of young people who are currently out of the housing market.

The report also calls on the Chancellor to introduce new Government-backed housing deposit guarantees and housing deposit loans which would be repayable through the tax system in the same way as student loans.

The HFI estimates that the pension transfer and new government loan schemes recommended in the report could lead to 30,000 more people becoming homeless each year.

He also pointed to the fact that first-time buyers are aging.

Sir Steve Bullock, chairman of the HFI and former Labor mayor of Lewisham, said: ‘From homelessness and affordable housing to home ownership and construction, the housing crisis is getting worse.

“The measures contained in this report are practical steps that can be taken in the budget to end the housing crisis.”

Natalie Elphicke, Conservative MP and head of housing delivery at the HFI, added: ‘Helping first-time buyers to raise a mortgage deposit must be a key priority in this Budget.

“Government loans for housing deposits and a pension transfer scheme would help revive the sluggish housing market and put home ownership back within reach of tens of thousands of under-40s currently locked out of the market.”

However, industry experts have raised concerns about encouraging young people to withdraw money from their private pensions that may never be replaced.

They have also said that while policies like these may help more people get up the ladder, they will also have the effect of driving up house prices even further for those who come after.

Peter Bill, author of Property Planet and co-author of Broken Homes: Britain’s Housing Crisis: Faults, Factoids and Fixes says: ‘The idea may attract buyers keen to get on the ladder. But they would do very well to refill their boat later.

‘Tax incentives can put a few more people on the housing ladder. But they tend to raise prices, not lower them.”

Jeremy Leaf, a north London estate agent and former chairman of the Royal Institution of Chartered Surveyors, added: ‘The problem with freeing up pension money for the purchase of a property is that the pension is part of a wider savings picture.

‘I’m concerned that people may be compromised by putting all their eggs in one basket by taking those funds and putting them into property.

Concerns: Peter Bill says allowing first-time buyers to tap into pensions for cash could drive up house prices

“And not everyone has a private pension they can draw on to cover their deposit, so some will be disadvantaged or unable to participate in a scheme linked in this way.”

Another measure to help first-time buyers expected to be included in the budget is a scheme that will allow some to take out home loans with just a 1 per cent deposit.

There have also been calls to reduce the stamp duty rate, or cut it entirely.

The HFI report also calls for the construction of 100,000 new affordable homes, arguing that the Government and councils can save more than £3bn a year on rents paid to private housing providers, while boosting the economy by £15bn.

The HFI says the cost of building the new homes would be largely offset by reductions in the housing benefit bill, which costs more than £20 billion each year.

Reducing discounts on Right to Buy deals would also help fund the plan, he proposed.

Other measures included in the report included a plan to relieve pressure on the green belt by building on disused “brown belt” land.

These are islands of derelict land within the green belt, such as a disused airfield or factory, which he argued should be available for redevelopment into housing.