London, 28 April 2021: The European Pensions and Property Asset Release Group (EPPARG) has responded to the European Commission’s Green Paper on ageing, calling for innovative and sustainable financing solutions, including home equity release, at a time when the COVID-19 pandemic is exacerbating budgetary pressures upon EU Member States.
The European Commission launched its Green Paper on Ageing for public consultation in January 2021, which identifies a range of policy challenges when it comes to meeting the needs of an ageing population across EU Member States. The Green Paper reveals that the total cost of age-related public expenditure already exceeds 25% of GDP in the EU27, while the fall-out of fighting COVID-19 and the economic consequences of lockdown measures have posed further challenges.
Steve Kyle, Secretary General of EPPARG, commented:
“The budgetary pressures on EU Member States to provide for elderly populations are being exacerbated by the COVID-19 pandemic on both economic and health grounds. We believe that the current situation calls for urgent innovative and sustainable financing solutions which limit the intergenerational burden”.
“The growth of home equity release solutions would allow elderly EU homeowners to safely unlock the value of the wealth that they have accumulated in their homes, which represent the largest asset for most people. The EU’s own figures show that more than two-thirds of the EU population own their own homes, while there is a high rate of home ownership among elderly populations in a number of EU countries, which exceeds 80% in Poland, Italy, Spain and Ireland, for example.”
In its response to the European Commission, EPPARG highlights the role of home equity release in reducing the risks of poverty in old age, by providing an additional option for elderly homeowners who are ‘asset rich but cash poor’ for consideration as part of pensions planning.
EPPARG considers that home equity release solutions have a dual role to play in contributing to fiscal and financial sustainability among EU Member States, both in terms of relieving the intergenerational burden on society and supporting intergenerational solidarity within the family.
With regard to pensions adequacy, EPPARG calls on the European Commission to take a more forward-looking approach and to encourage EU Member States to include home equity in the third pillar, which would significantly improve retirement outcomes. It also urges the European Commission to address funding challenges currently faced by market players.
Lennart Grabe, Deputy Secretary General of EPPARG, said:
“We consider that the EU is behind the curve globally when it comes to recognising the potential contribution of home equity release, noting that innovative approaches are being developed globally, with Australia already recognising home equity release as part of the third pillar, for example.”
“One of the main barriers to the expansion of home equity release markets in the EU is the lack of availability of funding. We urge the EU to ensure enabling financial market regulations and sympathetic capital treatment of home equity release solutions so that the EU market can reach its full potential, including facilitating cross-border funding solutions. We also anticipate that funders using returns on property assets over the long term will support the funding of ongoing private pension liabilities.”
EPPARG’s response to the European Commission can be viewed here.
Deutsche Leibrenten Grundbesitz AG has raised an additional 25 million euros via a convertible bond. This indicates the level of trust placed in Germany’s market leader for property-based pension plans by the institutional investors involved. Operating in a market which demonstrates further demand growth, the Frankfurt-based company continues to provide a safe and secure product for its elderly customer base.
“The solid expansion work over recent years and our rigorous alignment towards the ESG-related criteria of our product range are attracting ever greater attention from the capital markets”, says CEO Friedrich Thiele. The bond scheme is based on an enterprise appraisal that values the company in excess of 300 million euro. Obotritia Capital KGaA remains the majority shareholder of Deutsche Leibrenten AG with a stake of 95 percent.
Obotritia’s founder, Rolf Elgeti, comments: “While the possibility of a property pension element as part of retirement financing was undervalued in the past, it has now firmly established itself on the market and is on the cusp of further development. The growth we have exhibited during the past year – despite the corona pandemic – has demonstrated that having your own home is not just a safe place to be, but also a way of financially securing a pension over the long term.”
Deutsche Leibrenten AG has filled a niche within the pension financing sector and it continues to expand successfully. “The product we offer makes us an intriguing partner for increasingly larger numbers of financial service providers. Alongside 450 brokers, we are now also operating in partnership with approximately 150 savings banks and co-operative banks which have identified property pension schemes as a long-term solution for their clients”, explains the CEO of Deutsche Leibrenten AG. Additional partnerships with important players in the financial sector are expected over the coming months.
Deutsche Leibrenten AG is currently managing about 110,000 square metres of residential space diversified throughout Germany. In 2020, despite the difficult underlying conditions caused by the corona pandemic, Deutsche Leibrenten AG 2020 signed new contracts with a total value of 120 million – double the volume versus previous years.
“We are aiming to maintain our successful path of growth and continue full steam ahead with the further development of this exciting area of using real estate-based pension plans”, says Mr. Thiele. “And in future we will continue to exploit the opportunities offered to us by the capital and financial markets.”
About Deutsche Leibrenten Grundbesitz AG – www.deutsche-leibrenten.de
Deutsche Leibrenten Grundbesitz AG offers pensioners the option of selling their property without having to move out of their home. The sellers have a life-long right of residence based on legal usufruct principles – all fully notarised and entered with priority ranking in the land register – and will receive a monthly pension and/or a one-off payment. The Frankfurt-based corporation acquires properties throughout Germany and is supported by its majority shareholder Obotritia Capital KGaA, based in Potsdam.
Deutsche Leibrenten currently owns more than 800 properties. This makes it Germany’s leading provider of property-based pensions, and the company is Germany’s only member of the European Pensions and Property Asset Release Group (EPPARG).
The UK Equity Release Council has launched a member endorsement mark as part of a brand refresh that reflects the modern equity release market.
The endorsement mark provides a badge of trust for potential and existing customers to look for, reflecting the security which the Council’s standards provide.
It will act as a recognisable statement of quality that offers confidence and reassurance for consumers by embodying members’ commitment to quality and professionalism in the products and services they offer.
Members can use the new endorsement mark immediately, and the Council is encouraging them to adopt it as soon as practical, with a grace period which runs throughout 2021 during which time members are permitted to use the previous logo.
This year represents 30 years since the Council’s predecessor, Safe Home Income Plans (SHIP), established the first consumer-focused standards for equity release products and advice, bringing voluntary regulation to the market in 1991 ahead of the Mortgage Code’s introduction in 1997. Today’s standards have evolved over the last 30 years to complement statutory regulation since 2004 and provide what the Council believes to be the highest level of consumer protection for property-based lending in later life.
The new endorsement mark has been launched to members as part of a brand refresh which the Council has adopted to better represent the innovative and vibrant equity release market. This evolution forms part of a strategic programme of activity underway, including the appointment of a Risk, Policy and Compliance team to oversee the continuing revision and evolution of consumer-focused product and advice standards.
The Council also launched a new Competency Framework for advisers last month and has developed other adviser resources to support good practice across the market.
These milestones come at a time of significant growth in the Council’s membership. Over the last year, more than 100 firms have joined the organisation, taking the total number of member firms to 586, while individual membership has grown by almost 200 to reach 1,454.
The Council’s 2021 annual member census found 93% of respondents agree the safeguards and protections enable consumers to trust that equity release is safe and reliable.
Jim Boyd, CEO of the Equity Release Council, said:
“Over the course of 30 years of setting consumer-focused standards, the equity release market has been transformed to become part of mainstream conversations about funding later life. Today’s product range offers flexible finance to older homeowners, backed by robust safeguards and protections.
“At a time when people are living longer lives and have an unprecedented choice of options to release equity at affordable rates, our new member endorsement mark provides a sign of quality, professionalism and trust, by demonstrating to potential customers that members are committed to best practice in the products and services they offer.”
More information on the UK Equity Release Council is available here.
John Moriarty, Director at Seniors Money International in Ireland, shares the company’s experience of re-opening to new customers this year under a new retail brand Spry Finance against the backdrop of the pandemic, and sees a positive outlook for future market growth.
When Seniors Money Mortgages (Ireland) DAC – which is the only provider of lifetime loans in Ireland – re-opened to new applicants recently you also introduced a new retail brand, Spry Finance. What was the thinking behind this?
Both Spry Finance and Seniors Money are divisions of Seniors Money Mortgages (Ireland) DAC, which is the Irish operation of the Seniors Money International group (SMI). Spry Finance is the new retail division. Its role is to promote the product and then guide people through understanding and applying for a Lifetime Loan. The loan itself is still provided and serviced by Seniors Money, the lending division, which has been the leading lifetime loan lender in Ireland for over 15 years.
Spry Finance was established to create a clear distinction between the loan origination role (generating leads and then providing information, support and guidance to those who are making the decision about applying for a Lifetime Loan) and the role of being the lender and servicer of the lifetime loans thereafter. Until now both roles have been carried out under the Seniors Money name (so Spry inherits all that experience). With the welcome and ever-increasing focus on consumer protections in relation to financial services, we believe that having a separate division with a specific focus on the sales and arranging phase will help the group maintain its position as the market-leader in the lifetime loans space in Ireland, both as an originator and as a lender.
SMI has provided lifetime loans to clients around the world (Australia, New Zealand, Ireland, Spain and Canada) for nearly two decades now and we’ve learned along the way that, whilst loan origination and lending can sometimes feel like different business models with different economics and value chains, stakeholders (including customers, funders, regulators and shareholders) all want the same things ultimately. They want confidence that the loans are sold safely and transparently – which is where Spry Finance is laser-focused – and then that the loans will be reliably managed right through from credit decision to loan maturity and collection – where Seniors Money also has deep experience and track record.
How does the sales process work?
Spry Finance continues to follow our tried and trusted model whereby 100% of potential applicants, irrespective of whether we generated the lead ourselves or it was referred to us by a broker, are required to undergo a consultation process with one of our Client Consultants. In addition to comprehensive information being provided to the client, the process gets to the bottom of what the client’s personal and financial circumstances are and whether or not a lifetime loan is a suitable solution for them.
It is not in our interest to lend to people who do not fully understand how a lifetime loan works or for whom a lifetime loan is just not suitable. Spry will routinely advise clients that a lifetime loan is not suitable for them, if that is the case. Where it is established that the loan is suitable, Spry will assist the client in preparing their application and submitting it to Seniors Money. Seniors Money then takes care of processing the application, making a credit decision and creating the new loan.
Has the COVID-19 pandemic impacted upon the company’s ability to reach new customers and, if so, how is the business adapting to new ways of working?
The Spry consultation process ordinarily includes a number of face to face meetings with clients. In Ireland these meetings customarily take place in the client’s own home. Clearly our ability to conduct such consultations is impacted by COVID-19 lockdown restrictions.
Like many other businesses we have developed new ways to do business. A lot of the preliminary interaction with clients is now done over the phone and via email. Where face to face meetings are permissible they are conducted under social distancing rules, including the use of face masks and table-top acrylic screens. We’ve also equipped the Consultants with external screens for their laptops which can be turned to face the clients from a distance, and documents are provided and signed electronically, further reducing or eliminating physical paperwork. Where physical meetings are not allowed or feasible, we can conduct much of the consultation via video conference, although we still insist on at least one substantive face to face meeting before an application can be accepted and this has necessarily slowed down the progress of some cases through the pipeline as we await a re-opening of lockdown restrictions. We don’t think it is something that can be compromised on though, to ensure that we have the best possible understanding of each end every client.
How would you describe the appetite for equity release in Ireland currently? Do you see evidence of a pent-up demand, since the product was not available for a number of years?
We’ve long been aware that there is an ever-present appetite for equity release in Ireland. Even before we launched we had built a significant pipeline of unsolicited leads from prospective clients who had joined our waiting list on our website.
The number of Irish people aged 60 or older has increased by over 50% since Seniors Money first entered the market back in 2006, and these people are more active and feeling younger at heart than ever before – arguably therefore having an even greater desire than their predecessors to maintain a certain level of lifestyle in retirement. Unfortunately, adequate pension planning and provision has not improved much in that period for many of this new and growing cohort of over 60s who now face the same classic issue of being asset rich but cash poor.
We certainly saw evidence of pent-up demand both before and after our re-opening, which translates directly into a healthy flow of leads. However, we think the demand we are experiencing would be even greater if it were not for the COVID-19 backdrop. It’s difficult to quantify but it’s extremely likely that many people who would otherwise already be applying to us are instead temporarily holding back until the wider outlook is more certain and they can actually put the funds to the required use. For example, the most common loan usage has always been ‘home improvements’ and this simply can’t be done when the construction sector is still in lockdown.
What opportunities do you see for new funders and investors to enter the Irish market?
The Irish market will definitely see more participants. It is likely this will be a mix of Irish financial institutions as well as overseas parties. The market is attractive to investors given the demographics and that much of the legal and regulatory systems mirror that of the UK. The only limiting factor is size, with the addressable market being less than 10% of the UK.
SMI would welcome new market entrants. In the markets we have operated in, it has been our experience that more players is a positive dynamic which enlarges the market to the benefit of all. In the meantime, we believe that Spry Finance and Seniors Money themselves offer an attractive opportunity to new funders who would like to invest in Irish lifetime loan assets. We are a ready-made, experienced end-to-end platform to safely originate and manage these assets.
How do you assess prospects for growth in the equity release market in Ireland for the year to come?
We are very positive on the prospects for growth in Irish equity release market in the medium term. As I mentioned earlier, the Irish population is ageing and we see equity release as an increasing element of retirement planning going forward. Looking forward to 2022, we see further growth in demand for equity release as the Irish economy fully reopens following Covid-19. We expect to see increasing numbers of our client base exploring the equity release product to see what opportunities the product can offer them.
Paul Turner, Managing Director Retail at Just Group in the UK, shares his views on the social care debate, and suggests that helping people look ahead to later life with confidence rather than trepidation requires a bold vision of a better future.
The recent report from the Equity Release Council is a reminder that there are very real consequences to successive governments’ dithering over social care reforms.
Harrowing reports of the effect of the Covid-19 pandemic on care homes is obviously fresh in our minds but the truth is that years of government inaction has undermined enthusiasm for people to start thinking about or planning for their own potential care needs.
Even before the pandemic most people would prefer to stay living in their own homes if they needed later life care, but this recent research highlights that 60% of over-50s said they were ‘fearful’ about moving into a care home.
This desire to stay at home in later life is a key theme that has emerged repeatedly in the research we have conducted for our annual Just Group Care Report, which has been tracking the attitudes and understanding of over-45s towards the social care sector since 2012.
People consistently say they are interested in the care debate. But they are also confused about their rights and responsibilities and split on how care funding should be divided between State and individual.
Those who have experienced organising care for loved ones find it an onerous undertaking. Our 2020 report found four in five (78% found the system complex and hard to navigate, three-quarters (77%) found the process stressful, and nearly nine in 10 (88%) were shocked at how expensive care is.
People prefer not to think about or discuss the issue of care. We found four in five people over-45s have not thought about care or spoken to family or friends about it. Only a tiny minority have made plans or say they have saved money to fund it.
Helping people look ahead to later life with confidence rather than trepidation requires a bold vision of a better future. That requires a forward-thinking government prepared to act on its convictions and to be straight with the public about future care standards and costs.
The absence of clear policy or intention means it’s difficult for people to make plans for their own future. Unfortunately, this is exacerbated by frequent announcements about ‘fixing’ social care – creating a sense of impending change that never seems to bear fruit.
A more candid conversation is required to engage the public. And that honesty needs to extend to one of the most emotive issues – whether people should have to use the wealth in their homes to pay for care.
Political promises to ‘protect the family home’ must be set against the cost of social care and the trillions of pounds tied up in pensioner homes. And this must be balanced against people’s increasing resolve to stay in their own homes for longer and the rising expectations around the standard of care they want.
Covid-19 has thrown a massive spanner into the economic workings of this country and hit the care sector hard indeed. The big question going forward is whether that will be a catalyst for change towards a care system fit for the 21st Century or just another excuse to kick the can further down the road.
https://www.justgroupplc.co.uk/~/media/Files/J/JRMS-IR/news-doc/2020/just-care-report-final.pdf
#SocialCareReform #ERCCareReport #EquityReleaseCouncil #CareFunding
Robert Majkowski, CEO of Fundusz Hipoteczny DOM S.A. which is the largest home reversion provider in Poland, explains that while the local equity release market is still in its nascent stage of development, there are huge opportunities in the country based on its ageing population, the high level of homeownership among senior citizens and the low level of pensions.
As a leading player in the home reversion market, how would you describe the current market for equity release in Poland?
The professional equity release market has been developing in Poland since 2008. For many decades, a popular solution in our country has been the conclusion of life estate contracts between natural persons. Under such an agreement, in return for the transfer of the right to the property, the beneficiary retained the right to housing and at the same time had to receive a benefit in kind. Over time, this solution has evolved towards cash benefits. More than 10,000 contracts of this type are still concluded annually. The P2P (person to person) market carries a number of threats to senior citizens, and the development of professional solutions offered by financial institutions increased the security of the service for all stakeholders. The industry code of conduct has been in place since 2012.
Currently, only home reversion solutions are available in our country, despite the fact that a specific law allowing banks to offer a lifetime mortgage already entered into force back in 2014. Despite the enormous potential, which is very well illustrated by 90% of the silver population in Poland being homeowners and a very low level of pensions, the equity release market is still in the nascent stage of development.
In the light of the COVID-19 pandemic, how have equity release providers in Poland been adapting their practices? What are some of the challenges? Have you been able to take the business online?
Poland is a country with quite advanced digitization of the economy, and Polish senior citizens are increasingly using the Internet and new technologies. More than half of Poles aged 60+ use electronic banking, which represents great progress in recent years. Our industry is very active in the field of Internet marketing activities. Educational portals for senior citizens and social networking sites dedicated to this group are very popular and extremely effective marketing tools. Since the outbreak of the COVID-19 pandemic, in addition to implementing sanitary procedures in relation to personal contacts, we have also launched an online chat function and a video chat. However, for our customers, a phone call that ends with a physical meeting is the preferred and most popular model. Due to legal restrictions, we cannot conclude contracts online unfortunately.
How would you characterise the regulatory framework for equity release in Poland? Do you see active interest from policy makers in growing the market?
Currently, the home reversion market operates on the basis of the general provisions of the Civil Code. Professional entities must also adhere to industry principles of good practice. Since 2012, the Ombudsman and the Office of Consumer Protection have been calling for increased protection of consumers using the solution. As from 2013, together with the Ministry of Economy and Polish parliamentarians, we started the process of regulating the market, which in 2015, further to extensive public consultations, resulted in the creation of a very well-rated draft “Act on lifetime cash benefit”, which was to regulate home reversion schemes.
At the same time, between 2009 and 2014, work was carried out on the Act to introduce the lifetime mortgage into the Polish banking system, which ended with its adoption. Unfortunately, this provision remains a “dead” law to this day, in the sense that it has never been used. In our opinion, according to the assessment of the Ombudsman and the Office of Consumer Protection, in order to ensure the safety of customers and the development of the market, it would be better to adopt appropriate, ready-made regulations. Nevertheless, for over a decade, the professional market, unlike the P2P market, has been able to avoid any scandals or reputational problems. Current customers, in all surveys undertaken, have confirmed above-average satisfaction with the home reversion service.
How do you see the level of interest in equity release in Poland among the media and the public?
Media interest in the equity release service has fluctuated over time. Over the years 2013 to 2014, when work on the regulations was underway, journalists showed great interest. However, this interest has decreased over time. However, currently, due to the increasing difficulties and inefficiency of the pension system in Poland, the topic is attracting increasing attention. Equity release is beginning to be seen as one of the puzzle pieces of a modern and comprehensive pension system.
What opportunities do you see for new funders and investors to enter the Polish market?
Poland is a country with great opportunities and potential. From 1992 until the outbreak of the pandemic, Polish GDP grew continuously and dynamically. Despite this increase in comparison to the so-called countries of the old EU, there is still visible inequality and a lack of full convergence. A very stable real estate market, with 90% of the silver population in Poland owning the houses in which they live , a very low level of pensions and the ageing society in a country of 38 million population is a huge opportunity.
Claudio Pacella, CEO of 65Plus in Italy and EPPARG Board Member, was interviewed by WeWealth in Italy as part of a feature on lifetime mortgages, described as the ‘mortgage loan that turns the house into cash’.
Claudio explained that in general there are three reasons why people decide to take out a lifetime mortgage: an actual need for money, the fact of not wanting to give up the standard of living that they had become accustomed to and – increasingly – the desire to help their children to avail of immediate funds. He noted there are currently four credit institutions in Italy which grant lifetime mortgages: Mps (the only bank on the market since 2007), Intesa Sanpaolo, Imprebanca and Banca Popolare di Sondrio.
Furthermore, Claudio noted that the average age of those taking out lifetime mortgages is 74 years, while the average amount paid is around EUR 90-95,000, equal to about one third of the value of the mortgaged property. He highlighted that rates move in a range between 3.5 and 5.25%, which is much lower than a few years ago, when they had reached the peaks of 7-8% in 2010-2011. Asked how much money would need to be reimbursed at the expiry of the loan, Claudio commented that the capital doubles in 15 years at a rate of 5%, and in 18 years, at a rate of 4%, so assuming someone takes out a lifetime mortgage in 2020, of EUR 100,000 you will return EUR 200,000 in 2035, or in 2038. He commented that the lifetime mortgage is a poorly developed instrument, but it has significant margins for growth. He concluded that in Italy, currently, while the lifetime mortgage market is today limited (few hundred million euros), the actual potential is around EUR 2 billion delivered per year, equal to 0.1% of GDP, and could be quickly achieved.
The full interview in Italian is available here.
London, 27 January 2021: The European Pensions and Property Asset Release Group (EPPARG) and EY have today published the Global Equity Release Roundtable 2020 survey report, which predicts the global equity release market could more than treble over the next 10 years.
The report gathers data from market leaders across 13 countries globally with established or developing equity release markets, and analyses growth potential. The 13 countries span Europe, the US and Australia, and are considered to be amongst the largest equity release markets in the world.
Key findings from the report include:
Commenting on the survey findings, Steve Kyle, Secretary General of EPPARG, said:
“The survey report confirms that equity release providers across the globe are facing similar challenges and opportunities. As a global industry, we must now foster awareness of the considerable social and economic benefits that home equity release products can bring, particularly in the light of the global economic downturn triggered by the pandemic.”
“We also advocate a strong focus on standards, such as the EPPARG 10 standards which we have launched in Europe, to build confidence in this innovative product among both investors and consumers. It will be vital to grow the global market safely, working in close collaboration with regulators and governments, to demonstrate that equity release is a safe financial option for elderly homeowners seeking to supplement their income.”
Ben Grainger, UK Investment Advisory Co-Lead at EY, said:
“Equity release is an important element to a retiree’s financial affairs, and growth in the market will bring welcome competition and innovation. There is an element of chicken and egg to growth amid the various obstacles, but as investors increasingly recognise the potential of this market and growth does emerge, many of the current challenges will subside. Alongside market transformation and growth, it will be key that the advice providers fully align and move at the same pace to ensure that individual, tailored advice is given to users of equity release.”
Steve Irwin, President of the National Reverse Mortgage Lenders Association (NRMLA) of the USA said:
“Financial retirement risks for older homeowners are a global issue. 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.”
David Burrowes, Chairman of the UK Equity Release Council and EPPARG Board Member, said:
“This survey resonates with the Council’s 30 years’ experience and focus on supporting customer awareness and confidence by setting and evolving standards. It is timely that as the most mature market globally we are closely collaborating with our European friends to encourage the growth of the global equity release market alongside good consumer outcomes.”
Kevin Conlon, CEO of the Equity Release Industry Council (ERIC) of Australia said:
“The challenge of funding a dignified retirement is a global issue and the solution offered through equity release is often not well understood by those who would benefit most from accessing their housing wealth in this way. We congratulate EPPARG on the leadership role they have taken in ensuring a better informed market through the release of the 2020 Global Equity Release Roundtable survey report”.
The survey report can be accessed here.
The report is based on data collected from equity release market players in the following 13 countries: Australia, Canada, Germany, Italy, Ireland, the Netherlands, New Zealand, Norway, Poland, Spain, Sweden, the UK and the USA.
About EPPARG
The European Pensions and Property Asset Release Group (EPPARG) is the principal trade body representing the interests of home equity release providers in Europe.
Countries with EPPARG representatives or associates make up over 75% of all the countries in Europe with a home equity release market. EPPARG’s membership includes Spain, Portugal, Italy, Germany, Poland, Norway, Sweden, Ireland and the UK.
EPPARG seeks to foster dialogue between industry, EU institutions and governments on innovative pensions and property asset release solutions. The high level aims of EPPARG are the following:
About EY
EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets.
Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate.
Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws. For more information about our organization, please visit ey.com.
About the Global Equity Release Roundtable
The Global Equity Release Roundtable (GERR) is jointly sponsored by EPPARG, the National Reverse Mortgage Lenders Association (NRMLA) of the US, in collaboration with the UK Equity Release Council, and country representatives cover an estimated 80% of the global equity release market. After a successful meeting of the GERR in 2020, further events are planned for 2021 and it is expected that a GERR survey report will be produced on an annual basis.
Iñigo Hernández Alesanco, Director of Business Development at Óptima Mayores, explains that there is rising demand for equity release solutions in Spain, and great potential for new entrants to originate premium reverse mortgage portfolios at returns well above those of other established markets.
How would you describe the market for equity release in Spain?
As I see it, it is the market with the largest growth potential in Western Europe: we have a potential market of more than 8.2 million homeowners over 65, an unsustainable public pension system, and a very underdeveloped savings culture in private pension plans. If the market hasn’t grown to figures similar to those in other mature markets it is not due to lack of demand or need, it is due to a lack of providers. We get more than 20,000 unique visitors to our website optimamayores.com and more than 300 new enquiries every month. The point is that we can only satisfy a very small portion of this strong demand due to a lack of product supply: today, there are only three reverse mortgage providers with very limited ambition.
We have a stable and growing real estate market, a regulatory framework at the forefront of Europe, which even includes significant tax exemptions to promote the offering.
Currently reverse mortgages are offered in Spain at a 6% interest rate with an average Loan-to-Value (LTV) of 30% and premium real estate guarantees in the main provincial capitals of the country.
Last year, Óptima Mayores originated 30 million Euros, with a market share of 92%.
How have Spanish equity release providers been adapting their sales and marketing processes in the light of COVID-19?
The pandemic has made face-to-face marketing difficult, and that is why it has been partially replaced by remote advice through digital systems. The few physical meetings that are held are conducted with strict security protocols to ensure safety. At Óptima Mayores we guarantee an office protected from COVID-19, maintaining at all times more than 3 metres of security distance in our meeting rooms, taking people’s temperatures, providing hydroalcoholic gel at the entrance and undertaking daily disinfection of the entire office. The mortgages are signed at the notary office, but they are also required to guarantee a strict security protocol.
At Óptima Mayores, as one of the leading players in the Spanish equity release market, what demand are you seeing for reverse mortgages currently?
The demand for equity release solutions is increasing year on year. During the months of more restrictive measures due to the pandemic, the demand suffered significantly, but the needs caused by the consequent economic crisis have caused an increase in it after last summer as compared to the same period of the previous year. Although this is an increase caused by a circumstantial fact, it is expected that demand will increase even more due to the country’s own demographic pressure. Every year, the group of people aged over 65 increases by more than 120,000 people.
The Spanish market is marked by the lack of supply. Today, Óptima Mayores is capable of generating much more demand than current providers are capable of absorbing.
Óptima Mayores benefits from a collaboration with Banco BNI Europa, which has brought cross-border funding into the Spanish market from Portugal. What opportunities do you see for new funders and investors in the Spanish equity release market?
The Spanish market, with more than 8 million homeowners aged over 65 – of which 90% depend mainly on public pensions – is neglected. There is great potential for new entrants to originate premium reverse mortgage portfolios at returns well above those of other established markets. A favorable regulatory framework and a stable Real Estate market favour the entry of new providers.
In addition, there is a current of impulse on the part of the authorities to promote the development of the market to encourage entities to start the business, because they are aware of the need to facilitate new sources of income in retirement. The pressure on the current public pension system makes it mandatory to search for alternatives to improve the economic situation of retirees, and the reverse mortgage will play a leading role.
You are in the process of setting up a national trade body in Spain for the equity release industry. Why did you choose to take this step, and what progress have you made so far?
Although the market in Spain already has a clear and favourable regulatory framework, we want to establish very solid foundations for a safe development of the industry but that, on the other hand, does not limit innovation. The creation of this trade body will allow us to open bridges of dialogue with the authorities as well as to establish a series of standards and recommendations similar to what the Equity Release Council is doing in the United Kingdom or EPPARG does at the European level.
We have held the first meeting, which was a great success, and which was attended by the representatives of the main Spanish entities as well as the supervisory and regulatory authorities.
Deutsche Leibrenten Grundbesitz AG is funding its strong growth with the support of noted German institutional investors. The amount of convertible bonds issued in November 2019, a total of 50 million euro, has been increased by a further 25 million euro. This activity provides the market leader in property-based pension plans with additional growth capital to increase its acquisitions by a further 50 percent this year.
“Deutsche Leibrenten AG’s property-based pension plan is the most sustainable pension product in Germany and satisfies the strict criteria of ESG-focused investors”, says its CEO, Friedrich Thiele. “We are delighted that the capital markets recognize the great potential here and appreciate the continued support of our expansion strategy.” Underpinning the bonds is an enterprise valuation of 320 million euro.
The majority shareholder, Rolf Elgeti, continues to hold 95 percent of the shares through his company Obotritia Capital KGaA. “With this increase, we are again expanding the capital base of Deutsche Leibrenten AG”, says Chairman of the Supervisory Board, Mr. Elgeti. “Our aim is to permanently establish property-based pension plans within Germany, and to continue building on our history of success.”
The Frankfurt-based company has achieved significant milestones despite the Covid-19 pandemic. In 2020 Deutsche Leibrenten AG signed new contracts with a total value of 120 million euro, approximately doubling the size of the company year over year. The company target is to increase its transaction volume further to 175 million euro in 2021. Through its own portfolio, Deutsche Leibrenten AG is currently managing just under 100,000 square metres of residential space.
Deutsche Leibrenten plans to generate strong growth in the coming years through improvements to its operating platform, among other measures. Beginning in 2020 the company has enhanced its distribution channels with the creation of its own branch offices established throughout Germany. These branches complement the work performed in partnership with some 600 real estate brokers around the country. Seven branch offices have already opened and a further four are expected by the middle of 2021.
About Deutsche Leibrenten Grundbesitz AG – www.deutsche-leibrenten.de
Deutsche Leibrenten Grundbesitz AG offers pensioners the option of selling their property 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 with priority ranking in the land register – and will receive a monthly pension and/or a one-off payment. The sole provider of these kinds of pension products, the Frankfurt-based corporation acquires properties throughout Germany, supported by its majority shareholder, Obotritia Capital KGaA, from its base in Potsdam.