Why Nick Clegg's housing scheme won't work

The coalition's latest scheme to put housing within reach of first-time buyers is so ridiculous, it's easy to lose track of the many reasons why it can't work. So, here's a list.

John Stepek wrote a humdinger of a Money Morning this morning: This crackpot scheme proves that British houses are too expensive. One tweet even called it "his best essay yet". So what kicked off this particular bit of brilliance?

You can read it here but it was of course the idiotic suggestion from the Lib Dems that those with pension savings should use them to secure mortgages for their offspring in order that those offspring are better able to participate in the Ponzi scheme that is the UK property market.

John covers most of the problems with the idea in his piece, but it is so very stupid that more keep popping up. To help you keep track, here is a short and no doubt far from complete list.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Even if those with pension pots wanted to help their children out this way there is no need for this change. In the UK, investors can already take their 25% tax-free lumpsum at 55. It is hard to imagine that too many of them have children who want to buy houses before their parents hit this age. The fact that the Lib Dem spokesman floating the arguments claims a mere 12,500 people would take part shows just how very pointless it is.

At the moment, it is specifically prohibited in UK law for a charge to be put against a pension. So as Tom McPhail at Hargreaves Lansdown points out, this would need a change in legislation. And of course, once the door is opened to third parties having charges over pensions it is hard to see how it would be closed.

Note too that new legislation means more rules and more interference from HMRC. I can't imagine anyone is really up for that.

Another from Hargreaves most people are already horribly exposed to the housing market via their own house and mortgage. Suggesting they double up via their kids is not good financial planning. Indeed, as one reader notesunder John's piece, if an independent financial advisor(IFA) suggested anything similar, we'd all be absolutely horrified.

How will the moneyused to guarantee the loan be dealt with? Presumably, if it is guaranteeing a mortgage, most lenders won't tolerate it being used to take any capital risks. Will it therefore have to be held in cash with all the corresponding impact on long-term investment returns?

It solves the wrong problem. The problem is not so much that young people don't have enough money (that's another issue), but that, thanks to the asset-price inflation Western governments have encouraged for decades, house prices are too high.

It assumes that house prices will rise. They probably won't. People coming up to retirement are short of pensions savings already. If they do this, they could end up even shorter. A spokesperson from theNational Association of Pension Funds(NAPF) points out that "the Government has already looked at letting people have early access to their pensions and decided against it. People need to keep their pension for their retirement, especially with rising longevity and the costs of long-term care". Quite.

Most people have more than one child. Think of the family rows.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.