Since You Asked

Time for Dad to move to the garden shed

“Parents in work should be able to use pension savings to help their children buy a first property, according to proposals from Nick Clegg.”

– Financial Times

Dad?

Yes, darling?

Do you love me?

Of course I do; why do you ask such a thing?

Do you love me enough to use your pension to guarantee my mortgage with Barry?

[There is an awkward cough and a rustling of a newspaper.]

Dad, Nick Clegg says that you should be able to help me get on the housing ladder.

Nick Clegg should be old enough to remember that sometimes it’s more of a housing snake.

You’re always warning of a house price crash, Dad – but we’ve had the crisis and prices have fallen. Isn’t it time to buy?

Possibly, possibly not. For first-time buyers I seem to recall that prices relative to income are still well above the levels of the last bubble, at the end of the 1980s. I wouldn’t be so sure that a house is a one-way bet.

It may not be a one-way bet but it’s a bet I can’t take without your help.

What do you want me to do again?

I need you to guarantee my mortgage using the lump sum from your pension.

I see. That’s nice, darling. Isn’t that a bit risky for me?

No, it’s just to tick the boxes for the bank. I’ll pay the mortgage and you won’t have to pay anything.

I seem to remember that’s what everybody told AIG before it blew up. You basically want me to write a credit default swap on your mortgage and you’re assuring me there’s no risk. I’m afraid Barry has always seemed distinctly subprime to me.

That’s so rude, Daddy! Barry has a good steady job.

I wasn’t talking about his creditworthiness, my dear, but since we’re on the subject: there’s no such thing as a steady job in this day and age. There is always a risk that something will go wrong, and you, Nick Clegg and your bank would prefer that the risk landed on me.

But Dad, it’s such an imaginative policy: the older generation, who’ve benefited from rising house prices, have an opportunity to help out their kids, who have been shut out of the market by the same trend.

Nonsense. For a start, it’s not the older generation. It’s a very particular subset of people: people who aren’t old enough legally to draw money from their pension pot but are just about to be; who also have pension pots well above the national average; and who despite this don’t have spare cash to help out their children. I’d be surprised if more than a few thousand people take this up.

That’s a shame.

No, that’s a relief. The more people get involved in this the more instances we’ll have of parental pensions being poleaxed by their children’s financial misfortunes, which is hardly going to spread domestic peace and love. And it won’t help any more people get on the housing ladder, as you so strangely put it.

Why won’t it?

Because the only thing that will get more people on the housing ladder is more houses, something which this country has had a great deal of trouble accepting for some reason. If you don’t do anything to boost the rate of housebuilding, but you give financial help to one segment of the population – whether it’s key workers, or the children of moderately prosperous 54-year-olds – then you will simply pump up the price of houses until somebody else who would have been able to afford a house now cannot. This financial engineering can redistribute money and housing but it won’t create new houses. I realise higher prices might encourage more housebuilding but even that seems rather doubtful these days.

How can the older generation help the younger generation buy houses, then?

The main thing they could do is sell the houses they currently own and move somewhere smaller. Why on earth that would be preferable to simply building some more houses – in a recession, with the construction industry dragging down economic growth – is beyond me. But it would at least free up some housing stock.

Daddy, you’re an angel. I’ll get the garden shed all pimped out for you, and Barry and I should be able to help you move there by the end of next week.

Also published at ft.com.