What is Home Equity Release?
Home Equity Release describes a range of products that are only available to older homeowners, generally aged between 55 – 90. These products allow cash (equity), either as a lump sum or regular drawdowns, to be taken from the value of the property and for the homeowner to stay in the home for the rest of their life. It does not need monthly repayments and only has to be repaid on death or going into long term care. The products are not suitable for everyone, but increasingly they are providing a route for:-supplementing pension income, paying off debt, paying for care, vital home improvements and enabling active retirement.
What are Home Equity Release Schemes?
Equity Release allows individuals aged 55 and over to release money from the home they own and live without having to make any monthly repayments.
Equity Release Schemes transform fixed assets in owner occupied dwellings into liquid assets for private pensions. They thus enable a homeowner to access the wealth accumulated in the form of his or her home, while being able to continue to live in it. An illiquid asset becomes a source of liquidity, mainly for consumption purposes. (Source: IFF – Study on Equity Release Schemes in the EU)
What is driving the need for Home Equity Release?
Several social, economic and demographic factors are driving the growing need for Home Equity Release. The combination of falling birth rates and rising life expectancy means that around the globe the proportion of the population aged over 60 is rising rapidly.
There is a growing 'Pensions Gap' between what is available (from state-sponsored and private pensions) and what is required to fund people in their retirement. Already in many countries current pension and public health care arrangements are not sufficient. The cost of providing public benefits to people over the age of 60 will grow steadily as the proportion of the population made up of older people grows. (Source and more information: Seniors Money International)
Are there any codes of conduct for the Home Equity Release Schemes industry?
In a number of countries, such as Sweden and United Kingdom, the Home Equity Release market has reached a mature stage which has resulted in working out elaborate codes of conduct. For example, the Equity Release Council’s Code of Conduct sets strict criteria to which members must adhere, and which puts in place safeguards for consumers to ensure that they can have confidence in Equity Release Council members and their products and services. (Source: Equity Release Council).
What are the options for someone deciding to opt for a Home Equity Release Scheme?
The scope of services in the Home Equity Release Schemes market is very diverse and differs from country to country. Not only are the services known under different names in different countries, such as Mortgage Pension (Hypotekspension) in Sweden or Reverse Mortgage (Hipoteca Inversa) and Annuities Estate (Renta vitalicia inmobiliaria) in Spain, but also there is a wide range of options for every specific individual to choose which is the most suitable option for them. For example, in Spain there are more than 18 financial institutions providing the Home Equity Release services. (Sources: Svensk Hypotekspension, Óptima Mayores)
Who can use the Home Equity Release Schemes?
The Home Equity Release Schemes are designed for the elderly in possession of a home. The age conditions, however, change by country and by service. For example, the Equity Release Council in UK has set the minimum age at 55 years old, while the services provided by Swedish Hypotekspension’s and Just Retirement, for example, are only offered to those aged 60 or above. In Spain the minimum age is different for different services. For Reverse Mortgage it is 65 years, while for Annuities Estate it goes up to 75. The same way are varying other conditions. (Sources: Svensk Hypotekspension, Óptima Mayores, Equity Release Council, Just Retirement)
What is EPPARG’s role in the European Union?
Countries with EPPARG representatives or associates make up over 60% of all the countries in Europe with a Home Equity ReleasemMarket. This makes EPPARG the principal organisation representing the interests of European Home Equity Release service providers at the European Union level.
The high level aims of EPPARG are the following:
To encourage appropriate levels of consumer protection and standards across Europe to allow freedom of movement
To encourage the safe development of equity release as a solution to a pension gap
To work with regulators on funding issues e.g. relating to Basel III and Solvency II to enable appropriate treatment
To share best practices across Europe to encourage growth and innovation
To work towards a recognised quality label or kitemark across Europe
Steve Kyle is the Secretary General of EPPARG.
The EPPARG secretariat is provided by Newgate, led by Samantha Seewoosurrun.