Very naughty but we all did it when we couldn’t afford repayments!

A mercifully shorter pod from Darren and Nico centred on a session that they did at the PMI DC Conference last Thursday in Convene, the trendy new place much used by Professional Pensions. Their discussion was about pensions and housing . I asked a couple of people I work with what they thought and the best they said was that it gave CPD. It was, said one, better than two sessions dominated by lawyers (Linklaters and Sackers) and one on governance with four women and nothing new. The housing discussion was remembered as the one before the excellent session by Iona Bain. So I did not come to listen to what was said with much hope –  and I was right.

There were smart people from Nest Insight and somewhere else and a Helen Forrest Hall but I don’t think it addressed the kind of questions that people are posing right now.

Leasehold prices are falling and have been in the South for a decade. The experience of owning a flat is not pleasant for many reasons and we hope that some relief will be given them from ground rent and extortionate management fees. We have rental reform and with it we may have a rebalancing of having a home and owning a house. This rebalancing may mean that many people who have not bought a flat or house will decide that renting is as good a way of having a home. We may be back in balance with other European countries.

Another thing that is likely to change is people’s perception of pensions as a pot of money which can be raided to meet the major expenses of owning a house. Putting down a deposit and paying off the amount owed to the mortgager were solved in an earlier era by the 100% mortgage ( I used one to get on the housing ladder) and the pension mortgage.

The pension mortgage was discussed in the session with the PMI. I had one until recently and paid off my mortgage principle from the 25% of my pension pot. It was all very easy, I simply paid interest and my pension tax free cash paid off my mortgage.

Paying interest is the third leg of the house purchasing stool that has always been a problem. Your covenant as a borrower is dependent on you continuing to earn enough to make mortgage payments. We haven’t had double digit interest rates for some time, so we haven’t had the kind of problems with defaults that were common some time ago. I was supposed to finish my mortgage at 65 – even though my state pension age was 67. HSBC’s policy was not to lend to anyone over 65 who they deemed a pensioner!

I’m not sure that younger people are able to convince lenders that their’s would be a sufficient covenant if the bad old days of the 20th century were to return. If it’s hard to borrow if your 51 (which I was when I took out my last mortgage) how much harder must it be if you are 31 or 21. Underwriting of borrowers is tougher than ever for young workers with or without a small deposit.

In any case, the assumption that property prices will go up faster than anything else (calculated by most of us based on the leverage of borrowing), is no longer the topic of pub conversations (not that we converse much – preferring to text).

For all these reasons, I don’t think that ordinary people regard getting on the property ladder as quite the wonderful thing it was. Houses are now things that people inherit and things that cause inheritance tax and things that pay income to older people who haven’t got the pension to pay the bills that owning houses present.

Post the renters bill, using houses to pay pensions through buy to let, will become a lot harder. In Liverpool, they may all of lived in Robbie Fowler’s house but in future we may see a turning from private to social housing. This was touched upon.

All of the above could be a very interesting day’s discussion but whether pensions will pay a major part in house ownership I doubt. My purchase with a 100% mortgage and borrowing on an interest only basis seem to be off limits today! So we have silly discussions about raiding our pension pots at just the time when we are rediscovering that our pension pots are really meant to pay pensions!

The same people who tell us that our pensions are inadequate are the people (mostly at Nest and insurance companies) who want us to use our pension pots to help buy our houses.

Which tells you that I wasn’t particularly impressed by the audio of the housing session at the PMI DC event either. I would like to hear Iona Bain if anyone’s got one!

There is a lot on this podcast that isn’t about the podcast, some sad stuff about being a football fan and some discussions about whether the Pension Schemes Bill will run out of time (as if that was important – it gets a couple of minutes at the end). There is also a discussion of the regulators (FCA and TPR) are dealing with VFM (another consultation on the way according to Nike Trost).

What there isn’t on this podcast is anything on CDC. My friends tell me that the PMI did not do CDC at its DC conference, but that many questions were asked about income at retirement. If the ping ponging from the House of Lords (and their friends) gets the Pension Schemes Bill washed up, then we may never have a default guided retirement path for DC and we may not get VFM or consolidation (due to size) which will make for a very simple life for those who are making a lot of money out of DC.

It won’t make a lot of difference to whole of life CDC because we already have the legislation on the books last year. I suspect that having a pension dashboard on the way, that delivers ERI quotations (the ones that tell you how much pension you could get rather than your pot value) is going to be tough if there is no guided retirement path.

But heh! I’m going on a bit – apologies. I started selling section 226 plans to young professionals who bypassed repayment mortgages and assigning insurance policies – like I sold – I sold one to myself.  By claiming we had a pension that would pay off the mortgage we bought houses which we’ll be able to use for equity release. That’s another pension mis-selling scandal for the lawyers, but it’s the strategy we ought to be talking about – like pension mortgages, equity release really is how pensions and housing work!

For those who don’t own their home, the pension will be even more important  – not having any equity to release!