The CEO of the FCA has indicated openness to using pension savings to help individuals get on the housing ladder.
At a speech last week, Nikhil Rathi talked of FCA bringing forward ‘bold ideas for a joined-up future’ in which he said: “Buying a first home. Paying down a mortgage. Building a pension. Drawing on housing wealth later in life. These are not isolated events – they are junctions on the same financial journey. Can we do more to design policy, regulation, products and services that reflect that?”
He said that FCA was already looking at whether those who save regularly and reliably into a pension could be viewed more favourably by mortgage lenders, but went on to say: “Going further – one of the biggest challenges prospective homeowners face is raising a deposit. Australia, New Zealand, the United States, Singapore and South Africa all permit citizens to leverage their pension savings to buy a first home."
He acknowledged that there could be “trade-offs” if such a model was adopted in the UK, including “the ability of savers to replace those withdrawn funds, [and] the impact on house prices”.
Although making such a change would be a matter for government, Rathi went on to say: "As we think more radically about the mortgage market and options to support homeownership, what might this mean for saving, including for pensions, more broadly?”
The regulator first announced plans to simplify mortgage lending and advice rules in January this year, with its chief executive saying the changes would "support home ownership and opening a discussion on the balance between access to lending and levels of defaults".
Last week, the FCA confirmed that it has already started reviewing its responsible lending and advice rules for mortgages. In May, it will consult on proposals to make it easier for consumers to remortgage with a new lender, reduce their overall borrowing costs through term reductions, and discuss their options with a firm outside a regulated advice process.
A June discussion paper will then cover topics such as risk appetite and responsible risk-taking, alternative affordability testing and product innovation, lending into later life, and consumer information needs.
The FCA today confirmed that it has no plans to specifically explore using pension savings towards house deposits as part of its forthcoming discussion paper on the mortgage market, but will consider other issues raised in Rathi's speech, including utilising housing wealth in later life.
LCP partner and former pensions minister, Steve Webb, commented: “It is very encouraging to hear the head of the FCA talking to positively about thinking radically about how we save. For too long we have saved in separate ‘buckets’ with money for a pension in one place, short term savings for emergency needs in another, and money for a house deposit somewhere else. There is much to be said for trying to meet these needs in a single financial product, supported by workplace automatic enrolment, which could help more people become homeowners and reduce the risk of them having to fund a rent out of their modest retirement income. I look forward to the FCA’s consultation later this year and hope to see these ideas investigated in greater detail.”
Ruston Smith, chair of the Pensions Management Institute, added: "Home ownership is declining in the UK and three times more people are expected to be renting in retirement in the next 20 years. The cost of ‘renting in retirement’ alone could be equivalent to annual pension contributions of around 9% of pay from the age of 22. The statutory minimum of 8% wouldn’t therefore even cover the cost of rent, never mind put food in the fridge. The proposed FCA consultation will be a big step forward and is hugely welcome. The Lifetime Savings Initiative considered the learnings of those countries who have more developed retirement savings models where they look to support people in building short term savings and buying a first home as well as putting money away for retirement. With expected inadequate retirement savings for the next half century, people depend on wider lifetime savings to make ends meet in retirement."
