Equity Release Schemes Research Articles

Home equity and retirement funding: Challenges and opportunities

We investigate the use of home equity to address the retirement saving crisis and funding shortfall. Using survey data from consumers and financial planners, we examine Canadian consumers' views on equity release and gauge financial planners' knowledge, attitudes, and perspectives towards recommending equity release products to their clients. Our findings indicate that a primary barrier for consumers is their lack of understanding about home equity release schemes. However, when these schemes are more cost-effective and endorsed by financial planners, they become more attractive. Behavioral biases and emotional attachment to one's home did not affect consumers' willingness when considering these options. Among financial planners, there's a general comfort in advising on home equity release. Their preferred recommendation is the “sell and downsize” strategy, followed by HELOC. Interestingly, older planners and those with personal biases tend to be more hesitant in giving advice on this subject. The results of this study suggest there may be a willingness to access home equity by future retirees, and that there is less desire to bequeath assets to the next generation.

An Exploration of the Role of Housing Equity as a Supplement to Retirement Income

This paper explores the issues involving the use of equity in residential property as a source of supplementary income for the elderly (retirees and soon to be retired) in Ireland. Three focus groups were conducted to generate primary data. The research draws on the behavioural life-cycle hypothesis as an underpinning theory. The findings indicate that there seems to be a nascent interest in housing equity withdrawal among the elderly Irish. In terms of the different means of releasing housing equity, downsizing and rent-a-room appear to be the preferred choices, along with the use of equity release schemes (ERS) as a next preferred alternative. Furthermore, leaving a bequest is considered desirable but not necessary. These results contribute to the framing of public policy regarding retirement income.

Attitudes towards housing equity release strategies among older home owners: A European comparison

The ageing of European societies, the mounting pressure on pension systems, the rise of home ownership and the growth in house prices have sparked interest in housing equity release options and strategies. Much of the available literature approaches this topic through a financial lens, focusing on equity release schemes as a way to free up housing equity while remaining in the dwelling. However, there are also other ways in which housing wealth can be extracted, such as downsizing, moving to a rental dwelling or subletting part of the dwelling. There is very little recent international comparative insight into the perceptions and preferences of older home owners with regard to this matter. Which housing equity release strategy do they prefer and why? And to what extent is their decision to release housing equity influenced by the bequest motive? Based on focus group research in six European countries (Germany, the United Kingdom, Ireland, Hungary, Italy and the Netherlands), this paper observes some general trends and identifies a number of country specific variations.

The reverse mortgage: a tool for funding long-term care and increasing public housing supply in Spain

Population ageing is one of the most significant challenges facing the world in the twenty-first century. Furthermore, people aged over 65 typically have a level of income below the national average, but the homeownership rate among those in this age group tends to be high. Equity release schemes, specifically reverse mortgages, can help cover increased care costs and ensure a reasonable level of income, thus guaranteeing the well-being of older adults. However, this product has not been greatly developed by private entities. If the State were to implement this financial operation through public administrations, it could obtain homes that might then be included in public housing stocks. Thus, our paper aims to contribute to the literature on government-based reverse mortgage systems. Under our assumptions, the results showed that if 313,833 homes were reverse-mortgaged, the investment by the public administration would be around 0.73% GDP, with this being a feasible proposal. This work helps to create alternative methods to finance problems related with the ageing of societies from a public perspective.

The regulation of reverse mortgages as a source of income in retirement: policy options and legal drivers

The current context of uncertainty regarding the long-term future of pensions in European countries due to the lack of public resources, coupled with the unstoppable aging of the population, may force the elderly to use private financial instruments so as to meet their needs. One of them is the reverse mortgage, which enables them to withdraw equity from their homes without being required to pay back the loan during their lifetime. The truth, however, is that its use is not widespread, generally speaking, in European countries. This paper explores the regulation of the reverse mortgage in Spain and Italy, countries which have a legal framework for equity release schemes, and taking into account the legislation other countries have enacted to regulate this financial instrument (so the experiences in Ireland, the United Kingdom and the United States are taken into consideration), it concludes by formulating recommendations for policy makers to promote the marketing of this financial instrument.

Making Use of Home Equity: The Potential of Housing Wealth to Enhance Retirement Security

The demographic change underway, declining adequacy levels from traditional pay-as-you-go old-age social security systems, structural reforms in pension schemes and the reduction in the traditional family support have increased the need for additional private savings to cover the old age income gap. In this paper we discuss the necessity, the role and the viability of home equity release schemes in supplementing public and private pensions in an integrated way. We use the latest European data from the Eurosystem Household Finance and Consumption Survey (HFCS) to analyse the household's wealth composition and accumulation process in the euro area. To quantify the size of the housing wealth and its potential to enhance existing and future retirement income, we compute the equity-to-value ratio (ETV) for all countries, estimate the time to loan payoff and compute the amount of home equity that is expected to be released over a 10-year period through regular monthly mortgage payments. We then catalogue and discuss the many alternative options for managing and accessing housing wealth over the life cycle, and highlight the main characteristics, risks, advantages and drawbacks of the two most important market products (home reversion plans and reverse mortgages). Finally, we discuss the main demand-side and supply-side obstacles and challenges to the development of equity release markets and extract some policy implications.

Equity Release Schemes on Selected Housing Loan Markets Across the World

The development of new financial instruments enables banks not only to expand the scope of their services, but also to reduce their business risks to some extent. The loan portfolio diversification is one of the main methods used to disperse and reduce the loan risk, mitigating the potential adverse effects of the bank capital allocation.In the face of the recent years’ economic crisis, the strategy of diversification is becoming a matter of particular importance. Many high-risk products can be found in banks’ loan portfolios. Therefore today, to ensure the financial stability, it seems necessary to seek safer instruments that will not only provide a satisfactory income to banks, but will also enable them to compensate for losses generated by other risky sources. The reverse mortgage, offering seniors supplementary funds in the form of monthly proceeds based on the property ownership transfer to the lender after the borrower’s death may become such an instrument.Reverse mortgage products have been available across the world for many years now. They cannot be offered in Poland, due to the absence of relevant legal regulations, thereby remaining little known to the public and even to some of the institutions operating on the financial services market. Nevertheless, the situation may change owing to a draft law being worked on by the Ministry of Finance, its purpose being to enable banks in Poland to include an instrument of this type in their product range.However, the reverse mortgage may encounter a great number of barriers to entry in Poland. It is a matter of concern whether the product would appear interesting to customers, considering the demographic situation in the country, as well as the existing economic and social determinants. What is more, the reverse mortgage concept is a very controversial subject here, as it is not permitted by many of the regulations in force.The principal purpose of the paper is to define the possibilities of the reverse mortgage development in Poland, as well as to analyse the chances for introducing this type of a product to our market based on the experience of selected countries of the world.

Equity Release Schemes on selected housing loan markets across the world

The development of new financial instruments enables banks not only to expand the scope of their services, but also to reduce their business risks to some extent. The loan portfolio diversification is one of the main methods used to disperse and reduce the loan risk, mitigating the potential adverse effects of the bank capital allocation.In the face of the recent years’ economic crisis, the strategy of diversification is becoming a matter of particular importance. Many high-risk products can be found in banks’ loan portfolios. Therefore today, to ensure the financial stability, it seems necessary to seek safer instruments that will not only provide a satisfactory income to banks, but will also enable them to compensate for losses generated by other risky sources. The reverse mortgage, offering seniors supplementary funds in the form of monthly proceeds based on the property ownership transfer to the lender after the borrower’s death may become such an instrument.Reverse mortgage products have been available across the world for many years now. They cannot be offered in Poland, due to the absence of relevant legal regulations, thereby remaining little known to the public and even to some of the institutions operating on the financial services market. Nevertheless, the situation may change owing to a draft law being worked on by the Ministry of Finance, its purpose being to enable banks in Poland to include an instrument of this type in their product range.However, the reverse mortgage may encounter a great number of barriers to entry in Poland. It is a matter of concern whether the product would appear interesting to customers, considering the demographic situation in the country, as well as the existing economic and social determinants. What is more, the reverse mortgage concept is a very controversial subject here, as it is not permitted by many of the regulations in force.The principal purpose of the paper is to define the possibilities of the reverse mortgage development in Poland, as well as to analyse the chances for introducing this type of a product to our market based on the experience of selected countries of the world.

Private Sector housing conditions: influencing health and wellbeing across the generations

The private housing sector presents some of the worst housing conditions and most vulnerable occupants. Dr Jill Stewart and Anneyce Knight from the University of Greenwich look at interventions to assist those seeking evidence to contribute to health promotion activities The private housing sector (owner occupied and privately rented) comprises the majority of UK tenure and presents some of the worst housing conditions and most vulnerable occupants. Appropriate interventions can be highly effective in maintaining the physical, mental/emotional health and wellbeing of occupants and it is increasingly important to use evidence based practice in enhancing housing conditions through local plans and commissioning priorities.1,2 Poor housing in England costs over £600 million a year and the total cost to society may exceed £1.5 billion per year, providing compelling evidence for intervention.3 Good strategic approaches can help promote financial, social and environmental benefits of private sector housing renewal with a positive impact on health and wellbeing. 4 For example, improving housing can improve public health, children's education, older people's sense of security and general wellbeing as well as community sustainability. As funding is cut, it is increasingly important for local authorities and their partners to demonstrate cost effectiveness, potential for health and wellbeing improvement and likely health gain of interventions so that both social and private sector housing receive their fair share of resources. Prioritising children's housing conditions is important in order to address health inequality and bring about physical and mental health/wellbeing benefits.1,5 Children born into decent housing and environments are more likely to enjoy and maintain positive mental health and resilience to illness, including opportunities for quality social interaction. However, many families experience the constant threat of eviction; exposure to other residents with mental health, drug and alcohol problems; damp housing giving rise to asthma and related respiratory disease; lack of freedom to play in safety; and the risk of missing out on regular health care or education for frequent movers.6 Overcrowding is of particular importance in leading to problems in physical and social development as well as reduced educational attainment.7 At the opposite end of the spectrum, as people are living longer their housing needs and their ability to address these needs changes.8 One irony in the owner occupied sector is that owners may have a major capital resource, but have little to spend day to day. They may be anxious and lack understanding of equity release schemes or home loans to fund housing maintenance, repair, adaptations or improvements as well as changing social care needs. Whilst arguably those in the social housing sector have their housing and social needs met to some extent, many private sector residents risk missing out on support regimes due to poverty, social isolation and other difficulties as they 'age in place'. Older people are most likely to occupy poor housing and require home care although many wish to remain independently in their own homes for as long as possible. As the numbers reaching older age increases, so does the number of those living with progressive conditions such as dementia which in turn leads to associated higher risks of home accidents, as well as declining living environment through reduced maintenance. As housing conditions deteriorate around an ageing occupier(s), it is can also be challenging to 'design in' features that could help improve quality of life and wellbeing for occupiers and their carers, such as space for visitors, gas caps, lower windows for those who are less mobile or bed-ridden, colour coding to help avoid confusion and there is a need for new and emerging models of housing and health care services for older people.9 Fuel poverty in private sector housing has proven particularly challenging to address, due in part to this housing sector generally being older and more disparate, and not enjoying the benefits of large scale capital investment as social housing. …

Will older home‐owners use equity release to improve the quality of their lives?

If ‘income‐poor’ older home‐owners could draw on their housing equity easily and with confidence, then they could afford practical help that would improve their quality of life and make it possible for them to continue to live for longer in their own homes. This article reports on three local authorities that are now piloting equity release schemes, and the plans for monitoring and assessing them.

How Will We Provide and Pay for Long-Term Care?

Ageing produces not only financial dependency but also physical dependency. The projected fiscal costs of increased long-term care provision can be higher than those of increased pension provision. Cost projections can be questioned for failing to take account of increased demands for formal care as female labour force participation rises and as social constrains and household structures supportive of informal caring disappear. New ways are needed to pay for care, and conventional methods have not proved successful. Voluntary saving is unlikely to suffice, equity release schemes are inefficient, and mandatory care insurance schemes add burdens to wage costs in the same way as mandatory pension schemes do. The paper proposes the recouping of care costs from bequests as a way of increasing economic efficiency, of increasing choice and provision, and of reinforcing traditional intra-familial responsibilities. However, some redistribution to the less well-off elderly is inevitable. Evidence and examples of care technologies, of care costs, and of care financing systems are drawn from across the OECD area.

Equity Release Schemes and Equity Extraction by Elderly Households in Britain

ABSTRACTThe policy and popular debates suggest that the housing equity of elderly home-owners has provided them with a considerable stock of wealth which will influence the future social structure of the United Kingdom, as wealth is transferred to a wider cross-section of British society through inheritance. While various estimates suggest that the distribution of intergenerational transfers of equity is set to widen in the future (Hamnett, Harmer and Williams 1991), it is not known whether the rate of growth of housing inheritance will continue at the pace set in the 1970s and 1980s. This is due to the process of equity extraction by elderly persons, largely from their housing assets. The extent to which one form of equity extraction (formal equity release schemes) has influenced future housing inheritances is the focus of this paper. Drawing on data collected during a postal survey of institutions offering formal equity release schemes, and secondary literature, we conclude that such schemes are unlikely to have a substantial impact on future intergenerational transfers of housing equity. The equity withdrawn under existing schemes is minimal and is likely to remain so due to lack of demand and inflexibility in the supply of existing schemes. In this paper we shall examine the participation of elderly persons in, and the market for, equity release schemes.

Housing Subsidies, Inequality and Affordability: Evidence from Glasgow

This paper investigates the scope for housing wealth to alleviate poverty among Britain’s older population by modelling the potential effect of equity-release schemes on the net incomes of older homeowners using data from the 1993-94 and 1994-95 Family Expenditure Surveys. We find that, for the older population in general, the potential impact of equity release on poverty is limited by the positive association between homeownership and income in later life. The scope for equity release to enhance incomes is restricted mainly to the oldest age-groups where life expectancy is short. However, it is at these oldest ages that incomes are lowest and although we estimate that equity release cannot provide much benefit to those in the greatest poverty, the additions to income that equity release could bring to some of the oldest homeowners are not insignificant.