Parents could soon use their newly liberated pension to help their children get onto the property ladder, after the chief executive of Family Building Society revealed to FTAdviser it could become the first to launch a new breed of pension offset mortgages.
Mark Bogard, chief executive of Family Building Society, said in an FTAdviser video interview that in the wake of reforms which came into force this month offering open access to pension pots, he is looking at the potential this creates for new types of home loans.
“We are thinking about products for parents who can use their pension pots but still want to hold on to the money and not give it away, to help their children achieve a lower loan-to-value on their mortgage.
“The legislation has only just come out so we are thinking about that. Some people may use their pension pots to pay off interest-only mortgages. I think we will see that as well.”
There are a number of offset mortgages available on the market that can reduce the interest paid by younger buyers with small deposits, by allowing family members to put savings into linked accounts, with limitations on access until a portion of the loan is repaid.
It has not been possible to link mortgages to pension savings previously as retirement savings are locked away and used to provide an income from a limited range of options. Only money released - for example tax-free cash - and deposited in a savings account could be used for offsetting.
Speaking to FTAdviser’s Emma Ann Hughes, Mr Bogard also talked about the family mortgage the building society launched last year.
There are three options for families who wish to help their adult children buy a first home, including a standard ‘family offset’ account; a ‘family security’ account that provides security against a mortgage; and an account offering parents a charge over the mortgage.
He said: “We allow people to put money in a deposit account as security and it is only that amount that is at risk should the property have to be sold at a loss, which generally does not happen.
“That contingency contains the risk for the parents and grandparents.”
When quizzed on whether advisers were looking across the generations at financial planning, Mr Bogard said: “The market has really split. I go back quite a long way now and advisers used to do mortgages and investments and mix things up.
“Now, there is a completely split market. Investment advisers, who tend to deal with older people, do think more inter-generationally.
“We are starting to see mortgage advisers having to think more like that as well as people find it harder to get a mortgage in old age and children need their parents or grandparents to help them.
“We have just started to see it, particularly among some of the independent advisers, but I think we will see a lot more of that as people’s lives just get a lot more complicated.”
emma.hughes@ft.com
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