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Could unlocking pensions help first-time buyers step onto the property ladder?


By The Orchard Practice

The challenge of saving enough to act as a deposit has been well-documented, and now an Australian party has put forward a proposal – to allow first-time buyers to access some of their pension savings.

Much like in the UK, first-time buyers in Australia are facing several obstacles to buying their first home as property prices rise. The proposal suggests allowing first-time buyers to withdraw up to 40% of their pension savings if they have a 5% house deposit to allow them to buy a home sooner.

The average British first-time buyer takes 8 years to save a deposit

Figures from Barclays highlight the challenge aspiring homeowners are facing.

Most young people start saving for their first property at the age of 24, but the average age of a first-time buyer is 32. As house prices have increased, it’s not surprising that it’s taking longer to save the necessary deposit. In addition, rent and other costs are all rising, which could mean those saving for their first home have less to put away each month.

While the amount first-time buyers require varies significantly across the country, the average deposit paid by a sole first-time buyer in 2021 was £61,100.

Saving a deposit was cited as the biggest obstacle to homeownership by 35% of people.

You will usually need a deposit of at least 5% to purchase a home. With the average first-time buyer’s house costing £281,900, you’d need a minimum deposit of a little more than £14,000.

So, could unlocking pensions for first-time buyers support homeownership goals in the UK?

While formal proposals have not been put forward in the UK, the topic has previously been discussed. And while it could help you reach deposit goals much sooner, there are two key criticisms of the proposal:

  1. Many first-time buyers will not have had long enough to accumulate the pension savings needed to act as a substantial house deposit.
  2. It could have a long-lasting effect on retirement savings and mean people would face an income shortfall in their later years.

If you’re saving to purchase your first home, accessing your pension may not be an option but there are other things you can do to speed up how soon you reach your goal.

3 things that could help you buy a home sooner

1. Save using a Lifetime ISA (LISA)

Savers between the ages of 18 and 40 can open a LISA. It offers an efficient way to save a house deposit.

Each tax year, you can add up to £4,000 to a LISA and your deposits will benefit from a 25% government bonus. So, if you make full use of the LISA allowance, you’d receive an extra £1,000 each year to put towards buying a home. You can choose to save or invest through a LISA.

A LISA can be valuable, but if you make a withdrawal for a purpose other than buying your first home before the age of 60, you would face a 25% penalty.

2. Choose a family mortgage

If your family are in a position to do so, a family mortgage may mean you can purchase a house without a deposit.

A family mortgage involves someone placing the equivalent of a deposit into a savings account. This acts as a security against your mortgage and means you don’t need a deposit. Once a specified term has passed, your family member can withdraw their savings, along with any interest earned.

In the Barclays survey, 56% of first-time buyers said they wouldn’t have been able to get on the property ladder without family support. While gifting deposits has become common, a family mortgage can mean they’re still able to help if this isn’t possible.

3. Use the Help to Buy equity loan scheme

You will still need to save a minimum of 5% deposit to use the Help to Buy equity loan scheme. However, it can mean you’re able to buy a house that may otherwise be out of your budget.

Under the scheme, you can borrow up to 20% of the property’s price from the government, so your mortgage may be lower and more affordable.

There are restrictions when using the Help to Buy scheme, and it’s not right for everyone. The total value of the property must not exceed thresholds, which vary depending on where you’re buying a home, and it must be a new-build property.

You also need to keep in mind that the loan will need to be repaid. You don’t have to repay the equity loan until you sell your home or you’ve owned it for 25 years, whichever is sooner. However, interest will start being added after five years.

It’s also important to note that you borrow a percentage of your home’s value, rather than a fixed amount. So, if the value of your home increases or falls, so will the amount you owe.

If you want to use the Help to Buy scheme, you must reserve your home and apply for the scheme by 31 October 2022 and legally buy the home before 31 March 2023.

When you’re ready to buy your first home, we can help you find a mortgage that’s right for your needs and offer advice. Please contact us to talk about your options.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.