France & Italy Find Need For “Reverse Mortgage” Type of Product

imageA couple months ago, the Wall Street Journal published A French Revival of Home-Equity Deals which details how seniors in European countries like France and Italy are turning to transactions that allow older homeowners to receive cash by selling their property yet still being able to live in their home. 

As an example, the WSJ uses Madeleine Schlosser, an 82 year old who sold her Paris home to buyers who paid her 18% of the property’s market value up front and will continue paying her a monthly pension.  The borrowers will eventually move into the house which they paid far less than market price for, unless the woman lives many more years. 

While these type of deals are becoming more popular, the market for these kind of transactions is still very small.  In Italy, it’s called a nuda proprietà — literally, "naked property."  Most sales involve a lump-sum payment and no monthly pension to the seller. There were 50,000 such transactions in 2007, about 6% of the Italian real-estate market, up from 18,000 in 2000.

In France, where the system is called viager, after a word for pension, the numbers are still small, but have been rising. According to French statistics institute Insee, the annual number of viager deals rose to around 1,000 from 2002 to 2006, from around 700 from 1997 to 2001.

French lender Crédit Foncier started offering something like a reverse mortgage in 2007, by setting up more than 5,000 deals called the viager mortgage loan.  The mortgage functions much like a reverse mortgage her in the US without government insurance. 

The product reflects changes in the way people view their wealth: Because of longer life spans, children are now quite old when their parents die, and the inheritance of a house isn’t as useful as it once was says Alain Tourdjman, director of research at Caisse d’Epargne, the banking group that owns Credit Foncier.

A French Revival of Home-Equity Deals

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