Pen­sion pot de­posits and price war to help first-time buy­ers

Yorkshire Post - Property - - PROPERTY - Franz Muelthaler

The Deputy Prime Min­is­ter Nick Clegg has in­deed un­veiled plans to al­low in­di­vid­u­als to use siz­able pen­sion pots as a guar­an­tee to help their chil­dren raise a de­posit to buy their first home.

The plans are be­ing in­ves­ti­gated by the Depart­ment for Work and Pen­sions and the Trea­sury and would al­low par­ents and even grand­par­ents to draw up to 25 per of their pen­sion pots to se­cure de­posits for first-time buyer mort­gages.

In the­ory, your par­ents could set aside part or all of their fu­ture taxfree cash lump sum en­ti­tle­ment. Say your par­ents had a pen­sion pot of £40,000 this would al­low them to bor­row a de­posit of £10,000 to help you.

The lump sum el­e­ment of your par­ents’ pen­sion be­comes the col­lat­eral for rais­ing your home loan. It is an al­ter­na­tive op­tion for all to con­sider but one that shouldn’t be taken lightly. If for any rea­son you de­fault on your mort­gage re­pay­ment your par­ents’ pen­sion lump sum would be lost. Al­though the rest of the pen­sion wouldn’t be af­fected it would present your par­ents with a fi­nan­cial loss that will cer­tainly leave them out of pocket.

All in all, this type of op­tion seems favourable; es­pe­cially con­sid­er­ing sav­ing lump sums of cash is in­creas­ingly more dif­fi­cult. It also helps par­ents and grand­par­ents that don’t have float­ing sums of cash to sup­port younger fam­ily mem­bers.

While the de­tails of the scheme have yet to be fi­nalised the new ar­range­ments could come into ef­fect as soon as 2015 so I’d keep abreast of news on this and keep talk­ing to your in­de­pen­dent mort­gage ad­viser.

A: In a word “yes”. Of course, the banks have been in­cen­tivised by the Gov­ern­ment through the Fund­ing for Lend­ing Scheme to bring these prod­ucts to the mar­ket but it seems the need to of­fer long-term se­cu­rity and peace of mind to con­sumers is tak­ing a prece­dent.

Only the other week Leeds Build­ing So­ci­ety launched a 10year fixed deal up to 75 per cent of Loan to Value at 4.58 per cent and an 80 per cent deal at 4.79 per cent. Prod­ucts are avail­able for both pur­chases and re-mort­gages and clients can lock-in value for a decade. For many this will be a com­pelling deal with the se­cu­rity of a low rate prov­ing ir­re­sistible.

Vir­gin Money has re­duced its rates on a num­ber of res­i­den­tial and buy-to-let mort­gage prod­ucts. The lender has low­ered its twoyear fixed rate by 0.10 per cent to 2.79 per cent, avail­able up to 60 per cent loan to value with a £995 prod­uct fee. Its five-year fixed rate mort­gage is now 4.19 per cent, down 0.30 per cent, with the £1,995 prod­uct fee op­tion low­ered 0.20 per cent to 4.39 per cent. Nat West have re­sponded to HSBC and San­tander fixed five-year deals at 2.99 per cent with a 2.95 per cent pack­age over the same pe­riod and Bar­clays, Na­tion­wide and First Di­rect have cut their rates on fixed and tracker-rate mort­gages by up to 0.5 per cent.

Al­though these deals seem good you have to take into ac­count your per­sonal sit­u­a­tion. If you have a fixed monthly bud­get a fixed re­pay­ment mort­gage would suit you bet­ter than a tracker where rates can go up and down.

In ad­di­tion you will need to take into ac­count the ar­range­ment charge of fix­ing your mort­gage. Some providers of­fer low fixed in­ter­est rates but make up for this by charg­ing a higher ar­range­ment fee. Sim­i­larly you might be of­fered a higher fixed rate but a more rea­son­able ar­range­ment charge.

As with any fi­nan­cial de­ci­sion you should weigh up the pros and cons and take the ad­vice of a pro­fes­sional in­de­pen­dent mort­gage ad­viser. The de­ci­sion you make could leave you out of pocket or locked into a deal you can’t leave un­til the end of your mort­gage term.

Franz Muelthaler is mort­gage ad­viser for Hol­royd Miller es­tate agents, Wake­field, www. hol­roy­d­miller.co.uk

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