Deal refinances existing loan book and provides for future loan pipeline
Spry Finance, the Irish-owned provider of lifetime loans to those aged 60 and over, has agreed a long-term funding arrangement with Canada Life Reinsurance which will re-finance its existing loan book and provide funding of up to €100m for future lending.
Spry Finance, the retail arm of Seniors Money Ireland and the only provider of lifetime loans in the Irish market, has enjoyed considerable success since its relaunch in 2021 and the new funding agreement is a signal validation of its strategy and a firm underpinning of its business model for the future.
John Moriarty, Director and spokesperson for Spry Finance, said: “Spry is a customer-focused company, providing older Irish people (60+) with real options for living longer, better. A lifetime loan allows them to release value in their home – without having to sell it or move out – by borrowing a lump sum secured on the property.”
“We’ve enabled more than 750 Irish customers to release equity from their homes – for a range of purposes including home and lifestyle improvements, a cash fund for emergencies, repaying a mortgage, or providing a gift to their family.
“Our arrangement with Canada Life Reinsurance supports our ambition to grow the Spry Finance business in Ireland and develop the Irish market for lifetime loans, inspired by growth in other markets such as the UK.” (1)
Jeff Poulin, CEO of Canada Life Reinsurance, said: “We are delighted to finalise our long-term funding arrangement with Spry Finance. The scale of this investment demonstrates Canada Life Reinsurance’s commitment to our relationship with Spry Finance and our confidence in the Irish market.”
(1) Equity Release Council Market Report Spring 2022 https://www.equityreleasecouncil.com/wp-content/uploads/2022/03/Equity-Release-Council-Spring-2022-Market-Report.pdf
The long-term, tailored financing of equity release in the UK has been the cornerstone of the development of an attractive and safe product, according to Robert Majkowski, CEO of Fundusz Hipoteczny DOM in Poland, and as the idea emerged to transfer similar financing to other European markets this should increase the attractiveness of the product to elderly homeowners in Poland, among other countries.
In the UK, 12,485 people released equity from their homes in the second quarter of 2022, according to the latest data published by the Equity Release Council, a UK trade body bringing together entities operating in the lifetime (or reverse) mortgage market in the country (1). The number of new contracts concluded in the second quarter of 2022 increased by 26%, as compared to the same period of 2021. This means that in the UK, on average, 205 new lifetime mortgage contracts are signed every working day.
The UK equity release market has been growing for over 30 years, and the number of service providers operating in the industry, and the number of different solutions offered to elderly homeowners, is very large. From just April to June this year, more than 12,000 clients signed new contracts, which allowed people to free up £1.6bn which had been ‘frozen’ in real estate (2).
“The fact that hundreds of homeowners are now choosing to release equity each day, based on detailed financial and legal advice, is significant progress from the days when the market was considered an under-developed niche rather than the mainstream option it has become”, says David Burrowes, Chairman of the Equity Release Council. He explains that cash benefits from an equity release product allow elderly homeowners to stabilise their financial situation and often pay off their debts. A large number of retirees, thanks to the funds obtained, wish to support their loved ones financially.
It is worth recalling that the United Kingdom, along with the USA and Australia, is one of the most developed equity markets in the world. The Ernst & Young and the European Pensions and Property Asset Release Group (EPPARG) report “Global Equity Release Roundtable 2020” shows that in the UK the service is already available to people aged 55+, and the most common financial solution is a lifetime mortgage. According to an analysis published in this report, in the UK the annual volume will exceed $13 billion within 10 years, which means the British will be releasing – in just one year – equity of this value (3).
“In the most developed countries, equity release products have been offered for over thirty years, but the dynamic development began in the year 2002. Access to adequate, long-term financing, increased standards of service provision and the reputation of service providers played a key role in this process. The Polish market, if we look at it through the global prism, is still young, fledgling, waiting and even demanding legal regulations. The lack of an appropriate government act that comprehensively covers the entire market and all entities operating on it is one of the “brakes” blocking the development of the industry”, says Robert Majkowski, CEO of Fundusz Hipoteczny DOM, who is also a member of the EPPARG, the organization bringing together equity release providers across Europe.
“In the UK, long-term, tailored financing has for years been the cornerstone of the development of an attractive and safe product for seniors. After some time, the idea emerged to transfer similar financing, which successfully stimulated the development of the British industry, to other European markets. This is what is happening and should increase the attractiveness of the product offered, among others, to Polish seniors,” sums up Majkowski.
(1) Data for the second quarter of 2022 concerning the reverse mortgage market in Great Britain, Equity Release Council. Details: https://www.equityreleasecouncil.com/news/q2-2022-equity-release-market-statistics/
(3) Report “Global Equity Release Roundtable 2020”, prepared by EY and EPPARG, published on 28/01/2021. Link: https://epparg.org/news/global-equity-release-market-forecast-to-more-than-treble-by-2031/
Seniors Money Mortgages (Ireland) DAC has announced the purchase of a portfolio of equity release loans with a value of €90m. The loans consist mostly of lifetime loans, with a small number of home reversions(1).
Seniors Money intends to manage the loans through to maturity and repayment. All existing terms and conditions of the loans will continue, while the homeowners who took out the loans will also benefit from the tried and tested consumer protection policies and procedures that Seniors Money – which trades as Spry Finance – provides for all its clients.
Seniors Money (Spry Finance) is the sole Irish lender and servicer of lifetime loans. A lifetime loan allows the over-60s to release equity (value) in their home – without having to sell it or move out – by borrowing a lump sum secured on the property.
John Moriarty, Director of Seniors Money, said: “Seniors Money is delighted with the acquisition of this loan book, which provides additional scale to the company.
“We will continue to manage these loans to maturity and repayment and have been in touch with homeowners whose loans form part of this deal to reassure them that the terms and conditions of their loans will not change – they will continue to be honoured in full by Seniors Money.
“Seniors Money is committed to providing real financial choice, through lifetime loans, to individuals and couples in Ireland aged 60 and over. All of our customers enjoy the same dedicated levels of service – and this will be the case with these homeowners.”
(1) A lifetime loan allows the customer to retain ownership of their home, whereas a home reversion involves the sale of a portion or all of the home to a third party – both products are a form of equity release. In the UK, where equity release is a £5bn per annum market, home reversions represent only 1% of the market. Seniors Money does not offer home reversions.
The Spanish reverse mortgages provider Óptima Mayores has won the ECOFIN Jury Prize 2020. The awards recognise the efforts of companies and institutions that have excelled in their financial management in the last 18 months.
The ECOFIN Awards gala was held on September 8 at La Nave in Madrid, Spain, which brought together the winners for the 12th edition of the awards. This year, for security reasons, it was streamed through the Ecofin forum’s Youtube channel.
Óptima Mayores has thus received a recognition for being “the main promoter of the reverse mortgage in Spain, where it has managed to revive the market since the end of 2018, and where it also obtained a market share of 92% in 2019″.
Angel Cominges Rodrígue Carreño commented: “This award is a recognition of the persistence and determination of the Óptima Mayores team in ensuring that the elderly in Spain have the possibility to release the accumulated savings in their homes in a safe, transparent and responsible way, and thus improve their quality of life.”
He added: “This encourages us to continue working along the same lines and continue to help older people who want to get the most out of their real estate assets while still enjoying it. Thank you!!”
Just Group, the retirement specialist, announced on 13 July 2020 that it has introduced a new innovative feature – a green lifetime mortgage – as part of its latest product update.
The green lifetime mortgage from Just Group (“Just”) will offer discounted interest rates to new lifetime mortgage customers whose property has an A or B-rated Energy Performance Certificate (“EPC”). The new offering will be available to customers applying on the Just For You J2.5 LTV series to be launched on 20 July 2020.
It follows the Chancellor’s announcement on Wednesday of the £2billion Green Homes Grant scheme. Under the new scheme homeowners in England will receive up to £5,000 per household to make energy- saving improvements to their properties, with those on the lowest incomes getting up to £10,000.
Customers qualifying for the green lifetime mortgage feature will receive a 10bps discount on their mortgage rate and a £50 contribution to the cost of the EPC (received via cashback at completion of the advance).
Commenting on the new lifetime mortgage, Paul Turner, Managing Director of Retail at Just Group said: “Just has a proud history of helping financial advisers and intermediaries get the best outcomes for their clients. We do this through continually expanding our broad range of products to make it easy for advisers to design a solution that’s right for their clients’ needs and situation; previous developments include medically underwritten and interest serviced mortgages. Our green lifetime mortgage offers customers with energy efficient homes the benefit of more attractive rates on their Just For You Lifetime Mortgage.
“The £2billion Green Homes Grant announced by the Chancellor last week is designed to help thousands of homeowners make their homes more environmentally friendly and targets more financial support to those least well off. Homeowners who have a property with an energy rating to A or B will not only enjoy lower energy bills but now they can also benefit from a lower interest rate with our green lifetime mortgage. ”
The new J2.5 LTV tier in the Just For You suite of lifetime mortgages offers customers a greater LTV than the J2 LTV series at a lower interest rate than the J3 LTV series and has a loan to value ranging from 23% to 51.9% dependent upon customer age. It is designed to offer a competitive interest rate for the initial lump sum, whilst offering the customers the flexibility of an unused cash facility to be released when funds are required.
Since 2007, every house built, sold or rented must have an EPC, which rates the property with a score from 100, the highest, to 0, the lowest – scores of 81 or above qualify for an A or B rating. An EPC rating is valid for 10 years from the time of assessment and is issued by an accredited domestic energy assessor after an inspection of the property. Further details on EPC ratings can be found here.
Just (Just Group plc) is a FTSE-listed specialist UK financial services company. A leader in the individual retirement income, care and defined benefit de-risking markets, Just has been trusted to manage over £20 billion of customers’ retirement savings and has helped customers release over £5 billion from their properties.
The Equity Release Council (the Council) has published a temporary modification to the requirement for equity release customers to receive legal advice in a face-to-face setting during the COVID-19 pandemic.
The revision follows a detailed consultation with members and industry on the most effective way to maintain product safeguards, while also protecting customers’ personal health and wellbeing in the current climate.
It involves a new process designed with input from across the sector including providers, funders, advisers and in particular expert legal advisers with experience of equity release transactions across the UK. The Council’s Standards Board, with independent consumer and regulatory experts, also supported this process.
This will enable legal advice to be provided remotely without a physical face-to-face meeting during this unprecedented period of national lockdown and social distancing.
The agreed approach ensures multiple, mandatory contact points between the solicitor and customer before committing to take out an equity release plan. It involves a combination of written advice and documented video or telephone calls, which increase the total number of interactions between customers and legal advisers as a result.
As a temporary measure, it will enable independent legal advisers to continue fulfilling their key duties to consumers who are considering the option of equity release, by ensuring that:
The revision can only be used while the Government has directed the public to stay at home to contain the spread of COVID-19. During this period, the mandatory physical witnessing of a client’s signature on the mortgage deed can be carried out by an independent adult witness of the client’s choosing, who will also be subject to identity checks and due diligence.
Once restrictions on movement have been lifted, the aim is to return to the full face-to-face legal process with immediate effect. Any cases where sufficient checks cannot be carried out should be delayed until Government restrictions have lifted.
David Burrowes, Chairman of the Equity Release Council, comments:
“These are unprecedented times and the Council is pleased to have secured industry support for a solution that ensures consumers can continue to access quality, independent legal advice when considering whether to release equity from their homes.
“The new measures have been designed with input from expert solicitors who provide legal advice on equity release transaction across the UK. It is designed to support large and small solicitors to advise safely on equity release at this time.
“This unique and temporary solution is the result of collaboration and sharing of legal expertise among Council members in challenging circumstances, to ensure consumers’ interests remain protected. The Council will keep this modification under close review until it ceases, when the Government ends its ‘stay at home’ requirement.
“The process has also reaffirmed the value of the ‘gold standard’ face-to-face requirement for independent legal advice which is retained to use if and when Government guidelines allow.
“Property wealth plays an increasingly important role in later life planning, and these measures to maintain access to equity release legal advice for older consumers will continue to ensure it is chosen for the right reasons, as part of a carefully considered process that looks at both short- and long-term needs.”
More than half of senior citizens in Germany own a home and live rent-free in old age. But the way to one’s own four walls was rocky: two thirds of this group invested most of their money in their own property during their working life. Today’s pensioners could therefore not save much in addition, as the majority of the wealth is in the house or in the apartment. In addition, one in four people did not manage to repay the real estate debts completely until retirement. This is shown by a study conducted by Deutsche Leibrenten AG among more than 1,000 retired German citizens.
“Many pensioners are stuck in an economic dilemma: on the one hand, they have saved during their lives and diligently prepared for retirement; on the other hand, they cannot release their tied assets because they do not want to give up their beloved home and familiar surroundings,” says Friedrich Thiele, CEO of Deutsche Leibrenten AG. Instead of enjoying a carefree retirement, the following applies to many people even in old age: keep well and limit yourself financially. For every second respondent, their financial situation would improve significantly if the assets tied up in the property could be used.
The results of the study show how much the age of retirement is burdened: for 56 percent of the respondents, their financial situation in retirement has worsened. And looking to the future does not promise any improvement: around 30 percent expect a further financial deterioration in the next five to ten years. The repayment of remaining debts on the property is hardly possible. “Our experience shows that if you have not paid off your home by the time you retire, you will bequeath the debt to your heirs,” explains Thiele. According to Thiele, the concept of a real estate pension has proved its worth in order to free up the financial resources to maintain the usual standard of living, and cover necessary renovation measures and costs such as for healthcare.
“With our model, we offer many homeowners the opportunity to finally become debt-free. The real estate pension solves the dilemma. It allows seniors to stay in their own home and still use their assets,” says Thiele. This is because with a real estate retirement, your own house or apartment may be sold, but the former owners remain in it rent-free for life. You will also receive a monthly pension payment, a one-off payment or a combination of both. Both the rent-free right of residence or usufruct and the life annuity are notarized and entered in the land register. “This means that retirees are protected until the end of their lives and they can stay in their property for as long as they want. And even if you later move to a nursing home, you benefit from the rental income. In view of the currently high real estate prices in particular, seniors can look forward to the future with this model,” says Thiele.
German market leader for property pension schemes expands its presence nationwide
During 2019, Deutsche Leibrenten Grundbesitz AG achieved record amounts of new business transactions and procured volumes with 210 units and 75 million euro, respectively. The strong execution corresponds to growth of over 100% in the size of the company as compared to December 2018, thereby confirming the scalability of Deutsche Leibrenten’s platform and institutional nature of its portfolio and operations. These results secure Deutsche Leibrenten’s position as the market leader for property pension schemes in Germany, and further strong growth is expected during 2020 and beyond.
“We are pleased with the strong results of 2019 and are optimistic regarding our future prospects. With the 50-million-euro convertible bond issued in November 2019, we have laid the foundation to further expand our strong position in the market for property pension schemes”, says Friedrich Thiele, CEO of Deutsche Leibrenten AG. “With some five million property owners over the age of 65 in Germany, and a continuously ageing population, the market for responsible property pension schemes is very large.”
Establishment of own branch offices in major cities
The Frankfurt-based company offers homeowners throughout Germany aged 70+ all forms of property pension arrangements: monthly pension payments, a one-off payment, or a combination of both.
Alongside the continued expansion of the external sales structures consisting of real estate agents, banks and insurance companies, this year Deutsche Leibrenten AG will also be creating a third pillar to its sales capacity in the form of its own branch offices in major German cities.
“We will intensify our successful working partnership with local partners” says Thorsten Zucht, Chief Sales Officer. “By having our own branch offices, we can offer additional direct key account capacities for providing financial advice and financial services.”
Deutsche Leibrenten Grundbesitz AG offers responsible products to pensioners seeking to release equity without having to move out of their own home. The sellers have a life-long right of residence based on legal usufruct principles – all fully notarised and entered in the land register – and receive a monthly pension and/or a one-off payment. The sole provider of these kinds of pension products, the Frankfurt-based company acquires properties throughout Germany and is supported by its majority shareholder, Obotritia Capital KGaA, based in Potsdam.
Deutsche Leibrenten owns in excess of 400 properties and is Germany’s leading provider of property-based pensions. The company is a member of the European Pensions and Property Asset Release Group (EPPARG).
About Deutsche Leibrenten Grundbesitz AG – www.deutsche-leibrenten.de
Customers took advantage of record low rates and increasing product flexibilities to access £3.92 billion of property wealth in 2019 despite a cautious economic climate, according to year-end market figures from the Equity Release Council, the sector trade body.
The market has witnessed steady growth in the space of a decade, with the amount accessed by older homeowners per year growing from £945.97 million (2009) to £3.92 billion by 2019, representing an almost four-fold increase over the course of the decade. However, last year saw the market consolidate its growth, with lending volumes remaining largely unchanged since 2018 when £3.94bn was unlocked.
The final quarter of 2019 was the busiest period of the year, with more than £1 billion unlocked in Q4 alone. Moreover, it was also one of the busiest quarters on record, second only to Q4 2018 when lending volumes were just 0.1% higher.
Consistently strong consumer demand
Consumer demand continued to grow as older homeowners recognised the crucial role that property wealth can play in supporting their retirement alongside pensions, savings and other assets. 2019 saw the total number of customers served reach a record high of 85,497, of which 44,870 took out new plans (compared to 46, 297 in 2018) following a detailed process of regulated financial and independent legal advice.
Increased product features and flexibilities, such as the ability to make voluntary or partial repayments with no early repayment charge, has helped fuel this long-term growth in product uptake. Additionally, the Council’s Autumn 2019 Market Report showed that the average interest rate dropped to a record low of 4.91% in September 2019, partly the result of increased competition across the market.
The number of returning drawdown customers also increased by 3,676 over the course of the year, up by 11%, while the number of further advances/releases increased by 557 (15% increase), suggesting borrowers are unlocking conservative amounts and only returning should they need to access further sums.
Average withdrawals remain stable year-on-year
The most popular product amongst older homeowners continues to be drawdown mortgages, with nearly two in three (64%) new customers opting for a drawdown product versus a lump sum product.
Furthermore, while the customer base has grown to new levels, the average amounts withdrawn by homeowners have remained steady as customers are advised to unlock values appropriate for their foreseeable financial needs.
During 2019, average withdrawals from new drawdown lifetime mortgages remained broadly consistent with 2018, with the average customer unlocking £63,963 – double the annual income of a retired couple. The average new lump sum customer unlocked £97,282, triple (3.1) the annual income of a retired couple, and a modest increase of 2.4% from 2018’s average withdrawal.
Average new plan withdrawals
The average new plan for lump sum lifetime mortgages was £97,282, up 2.4% on 2018. The average drawdown lifetime mortgage new plan was £63,693, down 0.5% on 2018.
Standards evolve alongside market consolidation
Alongside this market consolidation, the Council recently evolved its standards to introduce an approach based on principles and consumer outcomes, which reflects the latest thinking in financial services regulation and complements the existing rules, safeguards and protections.
These updated standards, which represent the largest evolution since the organisation was established in 2012, build on the work which began in 1991 when clear consumer-focused equity release product standards were first introduced. This sets the benchmark for best practice by providing a higher level of consumer protection than any other form of property based loan.
David Burrowes, Chairman of the Equity Release Council said: “After a period of steady growth, the market has reached a point of consolidation in 2019 with lending volumes in line with 2018. The sector enters 2020 in a strong position with updated standards and a greater number of diverse members signed up than ever before. Looking ahead, we’ll continue to work with stakeholders to ensure consumers are able to access the best advice while ensuring joined up financial planning so that equity release remains a key consideration in mainstream retirement planning.
“Previously viewed as a niche product to support people’s retirement plans, the untapped potential of equity release is now being recognised. This comes as a growing number of customers are recognising the important role property wealth can play in meeting their retirement needs. This has been driven by competition, falling interest rates, increasing numbers of flexible and innovative product options and supported by rigorous standards in the market.”
2019 was a year of consolidation as equity release lending remains at £3.9 billion
Investment management company HPR Capital Management has issued a closed-ended special AIF for semi-professional and professional investors, the first fund of its kind in Germany to invest in equity release properties.
The fund, Portfolio Grund & Boden Invest 2019, will invest around €50m across 150 or so residential properties with a market value of more than €80m over a fund lifespan of 15 years. The minimum ticket size is €200,000 and the fund is aiming for an annual yield of around 4% based on a conservative value growth estimate of 2% and operating costs of around 0.7% p.a. An upside scenario assumes value growth of up to 6% per year and produces a yield of up to 12.5%. The initial profit distribution is planned for four years after issue and the fund obtained its BaFin permit at year-end 2019.
The fund will invest in undervalued existing residential stock in sustainable top locations across Germany. The purchase price is estimated using the market value minus the hypothetical rent (value of the life interest) for a defined period. For example, in the case of a 70 year old owner, the purchase price minus the value of the life interest would be around 60% of the market valuation. As such, the seller remains the beneficial owner of the property until his or her death.
‘Purchase prices for residential properties in Germany have risen by almost 50% over the last 10 years, and condominium apartments have almost doubled in price since 2010,’ Michael Rau, managing director of HPR, told REFIRE. ‘We buy off-market real estate from people who, initially, might not want to sell. We have around €30m of potential acquisitions in the pipeline. We’re mainly looking at the Big 7. The reasons why people sell vary; around 10% need the money but the remaining 90% want to keep their standard of living. Their children are already in their 50s, so they don’t need the money.’
HPR Capital Management will call on a network of established equity release providers, including an initial co-operation with the company HausplusRente GmbH.
‘This trend will continue, which means that residential properties remain an attractive investment,’ said Rau. ‘However, skyrocketing prices are making it difficult to find suitable products offering attractive yields. The seller can use the capital tied up in the property and is also able to remain in his own home. Our investors can purchase an attractive property as part of an off-market transaction at below market value.’
And as more and more pensioners struggle across Europe, the demand for equity release is expected to increase, according to Steve Kyle, secretary general of the European Pensions and Property Asset Release Group (EPPARG), a Brussels-based organisation representing the interests of European home equity release service providers at the European Union level.
‘We have observed over a number of years that the number of social demands on the elderly is increasing across Europe,’ he said. ‘Even in Germany, the level of home ownership is becoming quite high and it’s a very large market. Equity release is about, aspirationally, having a better life. There are several trillions of euros in property assets held in Europe by people aged 55 or above. That puts the penetration rate at less than 1%. We’re just at the beginning of something very exciting.’
EPPARG aims to encourage the safe development of equity release as a solution to the pension gap and to work towards a recognised quality label or kitemark across Europe. Countries with EPPARG representatives or associates make up over 60% of all the countries in Europe with a home equity release market. EPPARG is in the process of introducing pan-European principles and standards, according to Kyle.
However, would-be customers need professional help to ensure they understand what equity release entails, Kyle warned. ‘Typically, customers are looking at compound interest on the loans, which can range from 2.5% to 7% per annum. However, some newer products allow customers to pay some of the interest off each year. As the market grows, it will become more innovative.
Deutsche Leibrenten Grundbesitz expands its presence nationwide
Given Germany’s ever-increasing elderly population, it’s easy to see why property and pensions are coming together. Last month, German property pension scheme group, Deutsche Leibrenten Grundbesitz, expanded its presence nationwide following a strong 2019. The Frankfurt-based group offers homeowners throughout Germany aged 70 or above a variety of property pension arrangements, including monthly pension payments, a one-off payment, and a combination of both. It now plans to open additional offices in major German cities. During 2019, it achieved record amounts of new business transactions and procured volumes with 210 units and €75m, respectively, corresponding to growth in excess of 100% y-o-y. Deutsche Leibrenten also issued a €50m convertible bond in November 2019.
‘Deutsche Leibrenten has been active in equity property release for the last four years – it’s our entire business,’ Friedrich Thiele, CEO of Deutsche Leibrenten, told REFIRE. ‘We are offering a nationwide product. This year, we want to do around €100m of new business. The percentage of people owning their own home in Germany – and ageing – is growing all the time, so this segment of the market can only grow going forward.’
Thiele estimates that between 150,000 and 200,000 people in Germany each year could potentially be interested in releasing the equity in their homes in this way. ‘The biggest challenge we face is to make equity release popular and to establish sustainable market standards in the German market. With some five million property owners over the age of 65 in Germany, and a continuously ageing population, the market for responsible property pension schemes is very large,’ Thiele said.
However, it is important for equity release schemes to be sold properly, according to Kyle. ‘We have a lot of support from governments because equity release is putting a housing market asset to work. It’s good for the economy and it’s good socially but we want standards across Europe so that this product is sold well.’