Global Home Equity Release Faces Familiar Challenges to U.S. Reverse Mortgage Business

Multinational professional services network Ernst & Young (EY) and the
European Pensions and Property Asset Release Group (EPPARG) have published a new report featuring survey insights from several nations across the world which participated in an event called the 2020 Global Equity Release Roundtable, which took place in late 2020 emanating from London, England.

The report, which features the perspectives of participants only, details the general thoughts on the home equity release markets of 13 different nations including the United States.

The report offers unique insight into where certain “hotspots” reside for home equity release across the surveyed nations, and even with market penetration being relatively low in comparison with the traditional mortgage market, the United States still serves as a leader on the front of home equity release. However, equity release revenues in a couple of other nations much smaller than the U.S. are also showing emerging strength.

One key finding of the survey says that between the participating countries, over $15 billion USD of equity is released per year for homeowners. By 2031, however, the global equity release market is expected to exceed $50 billion in annual releases.

Market size, presence of financial advice

In a measurement of the home equity release market size of all the participating countries, the United States was one of the largest. However, two other nations emerged with market sizes that are approaching the size of the United States even with much lower total populations: the United Kingdom and Australia.

In a graphic representation of the size of the reverse mortgage markets in each of the participating countries, the U.K. and Australia are standouts alongside the United States in a global “heat map” of equity release market activity. Last year at RMD’s digital event “HEQ: The Future of Home Equity in Retirement,” Longbridge Financial CEO Chris Mayer described the U.K. as a burgeoning home equity release market even in the face of similar difficulties that are faced by U.S. reverse mortgage providers.

“In most parts of the world, they refer to this as equity release, not reverse mortgages,” Mayer explained to Aging Media Network’s VP of Branded Content Elizabeth Ecker during the event. “Elsewhere, as here, reverse mortgages have a taint to the name that’s not perfect.”

Market penetration in the U.K. has also moved at a considerably faster pace in the U.K., Mayer explained at the time.

“In 2018, for example, there were about 36,000 reverse mortgages and 1.3 million traditional mortgages,” Mayer said at HEQ. “So, if you think about that market share, it’s really 2.5%. In the U.K., it’s 36%. So, [there is an] enormous difference.”

The survey also asked all of the participants whether or not equity release customers are “required to seek independent financial advice.” As in the United States, the requirement is present in the U.K., Canada, Spain and New Zealand. Only “some” institutions have the requirement in Australia, according to respondents.

Funding sources, products

Only some of the participating countries have similar funding sources for home equity release products to the United States. Securitization was named as the main current funding source for such products in Australia, Ireland, Sweden and the U.S. In the U.K., home equity release mortgages are funded primarily by insurance companies, which is also the case in Spain and the Netherlands.

Debt was the main attributed source in Germany and is also utilized by Ireland, while Canada was the only nation to describe whole portfolio sales as its primary funding source for home equity release instruments. While the Canadian reverse mortgage market is smaller than the one in the United States, the two major reverse mortgage providers in the company have been posting record gains as more older Canadians — with the minimum age eligibility in that country standing at 55 — are turning to their homes to provide additional financial stability in retirement.

While demand showed signs of slowing down late last year in Canada, reverse mortgage debt in the country still topped $4.3 billion CAD (roughly $3.4 billion USD) by September, 2020. More recent reporting places full year 2020 Canadian reverse mortgage debt at $4.43 billion CAD, a rise of 12.55% compared with 2019.

The presence of a “no-negative-equity-guarantee,” otherwise known in the U.S. as a non-recourse feature, is present in every participating country’s offering except for Germany and Spain, the report says. The feature’s inclusion is not applicable to the product offering in Poland.

Barriers to industry growth internationally

Interestingly when asked what currently serve as the biggest barriers to growth in the home equity release industries of their respective nations, none of the participants felt that it was a lack of product innovation. Instead, participants largely laid the blame for lack of additional growth at an issue all too familiar to the reverse mortgage industry in the U.S.: a lack of product awareness.

9 of the 13 participants said that lack of customer awareness about home equity release was preventing additional growth for the release of home equity. The remaining four nations — Italy, Ireland, Poland and Spain — attributed a lack of industry growth instead to insufficient funding as opposed to an awareness problem.

Since the majority of nations indicated that similar barriers exist to the reverse mortgage industry to America, greater education is a uniquely unifying goal among equity release practitioners across the planet according to Steve Irwin, president of the National Reverse Mortgage Lenders Association.

“Financial retirement risks for older homeowners are a global issue,” Irwin said in a statement accompanying the release of the survey. “As the survey indicates, the international market participants face similar challenges to product development and acceptance. It is also clear that there is a common understanding that the responsible use of home equity is a critically important option to help mitigate these potential retirement risks and help older homeowners stay financially secure.”

Read the full survey results at the European Pensions and Property Asset Release Group (EPPARG).

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