Ireland’s leading, and now only, provider of Lifetime Loans is re-opening to new applicants.
Spry Finance, the new retail division of Seniors Money Mortgages (Ireland) DAC, has announced that it is now open to new clients with immediate effect. With over 15 years’ experience of working with Irish applicants for Lifetime Loans, Spry’s role is to provide information and guidance to those thinking of applying for a Lifetime Loan. The loan itself will then be provided by the lending division, Seniors Money.
Lifetime Loans allow older homeowners (60+ in the case of Spry Finance) to borrow against the value they have built up in their property without the need to sell it, trade down, or make monthly repayments. Instead, interest is added to the loan balance, which grows over time, and the loan is not repayable until after the borrower dies or moves out of the property.
Older homeowners are often ‘asset-rich’ but ‘cash-poor’ and would not have access to a traditional re-mortgage product due to their age. A Lifetime Loan enables them to borrow against the value of their home while still retaining 100% ownership of it and without having to move out of it.
Speaking of the announcement Derek Handley, Director, Spry Finance, “We are delighted to be able to offer Lifetime Loans to the Irish market once again, and to be doing so through our new division, Spry Finance. Based on over 15 years of experience in Ireland and overseas, Spry will take time to get to know people and their individual circumstances and to help them figure out whether or not a Lifetime Loan is a suitable solution for your particular situation. If, after assessment, a Lifetime Loan doesn’t look like a suitable option then we’ll let the applicant know – as we already have done in several instances during our recent pilot scheme.”
The new Lifetime Loan product is closely based on the version previously offered to the Irish market by Seniors Money. The amount you can borrow depends on your age and the value of your home (for example, a maximum of 25% of the property value at age 70). The big difference with the new product is that the interest rate is now fixed for life. Fixed interest rate lifetime loans give borrowers total certainty on what the future loan balance will be and are the norm in the UK, where over £4 billion worth of these loans are taken out each year.
Spry Finance report that because this credit option hasn’t been available in Ireland for the last number of years, there is a pent-up demand in addition to a growing underlying demand, as the number of over 60s in the population continues to grow.
Mr Handley commented, “For every ten people who were aged 60 or older when we first launched in Ireland back in 2006, there are now fifteen. The family home remains the single biggest asset most of this age group have, and a Lifetime Loan allows them to release some of the value tied up in that home, without having to sell or move out of it. From the volume of unsolicited enquiries that we continue to receive, it’s clear that there is strong demand from a significant number of older homeowners who want to use the equity they have built up in their home to provide themselves with the necessary funds to make their home or other parts of their lives more comfortable in the latter part of their working life and in retirement.”
The Lifetime Loan Process
Mortgage brokers can refer clients to Spry Finance but cannot directly submit applications. All applicants for a Lifetime Loan must first complete a mandatory consultation process with Spry Finance, to ascertain if a Lifetime Loan is suitable for their needs and to ensure that they have received and understood all the necessary information on how the product works. This is the same process as previously successfully used by Seniors Money and has recently been re-tested in a pilot scheme.
Mr Handley explained, “It is in everyone’s best interests, especially the client’s, that the provision of comprehensive information on Lifetime Loans is handled by a specialist team who focus solely on this product day-in and day-out and have been doing so for years. We are confident that, as the only provider of this finance option for the over 60s in the Irish market, we can address a financial need that certainly exists for many. We’ve just completed a very successful pilot scheme with the hundreds of people who were already on our waiting list, and the first loans have already been drawn down. We’re ready now to open the doors to everyone who is interested.”
Spry Finance report that, based on the recent pilot scheme, borrowers will continue to use the loan proceeds in similar ways to those previously experienced in Ireland and other countries. The loans are typically used for more than one purpose, but consistently the most common use is to fund works to the home to make it more comfortable and energy efficient. After that, clearing small residual debts to free up monthly cashflow and funding specific care or medical expenses are amongst the variety of other purposes for which the loan proceeds are used. These are generally once-off expenses that may be a challenge to fund solely from a retirees’ existing pension income.
Of the new brand, the company said that Spry Finance has been created as a new, more relevant, consumer-facing brand for a new generation of Lifetime Loan customer and to create a clear distinction between the role of 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 of the Lifetime Loan itself.
About Spry Finance
Spry Finance is a trading name and retail division of Seniors Money Mortgages (Ireland) DAC. Its role is to guide people through understanding and applying for a Lifetime Loan.
Through a consultation process that is mandatory for all applicants, Spry Finance provides comprehensive information about the Lifetime Loan option and advises applicants on the suitability or otherwise of a Lifetime Loan to meet their particular financial needs and circumstances. The loan itself is still provided by Seniors Money, the lending division of Seniors Money Mortgages (Ireland) DAC which has been the leading Lifetime Loan lender in Ireland for over 15 years. Seniors Money Mortgages (Ireland) DAC, trading as Spry Finance and Seniors Money, is regulated by the Central Bank of Ireland.
According to CSO census data and population projections, there were c.650,000 people aged 60 or older in Ireland in 2006 and today this stands at c.1 million.
Paul Turner, Managing Director Retail at Just Group, highlights that the UK equity release market is climbing back to normal levels, despite the pandemic, and identifies funding opportunities for UK life insurers in Europe.
How would you describe the current market for equity release in the UK?
After a record start to the year, lockdown was a big reversal. The latest figures for the UK market from the Equity Release Council show the market is climbing back towards normal levels – with the number of new plans purchased in Q3 only 9% down on the same period last year, the value of those plans down just 3% and the number of customers in Q3 increasing by about 40% compared to Q2.
To what extent has Just Group been able to take its business online, in the light of the COVID-19 pandemic? What are some of the challenges faced during periods of lockdown?
Our business moved to remote working quickly and efficiently but parts of the equity release process, such as the requirement for face-to-face legal advice or on-site property valuations, clearly presented some challenges when operating remotely. Given customers are older they were naturally more concerned about being exposed to coronavirus.
We’ve quickly adapted how we do business to maintain high levels of protection for our customers – either by making sure they could still access quality, independent, legal advice without having to leave their home, or arranging desktop valuations where the customer was uncomfortable with someone visiting their home.
The property market was effectively closed for a period – putting lifetime mortgages customers, or their beneficiaries, trying to sell properties in a particularly difficult position. Just was the only lifetime mortgage firm in the UK to give hundreds of pounds back to these customers, by reducing the interest rates while lockdown kept the market closed.
Just Group undertook research earlier this year to find out how people’s perceptions of their house had changed after they had been working from home. What were some of the key findings? Can any lessons be drawn regarding likely future demand for equity release products?
One of the ideas lockdown raised was whether people would want to move house after being forced to spend so much time in their homes. Not so, according to our research. Most people were happy with their homes with only 13% saying it felt like a prison in lockdown. A greater proportion were happy to stay put and some wanted to modify their homes to suit their changing needs.
This mirrors the equity release market. People often have an emotional connection with their home or neighbourhood – they’d rather not move but do want to make use of the value in their house. One of the most frequent uses of lifetime mortgages is to make home improvements so customers can stay in their homes comfortably as they get older.
Just Group recently launched the UK’s first green lifetime mortgage. What can you tell us about this initiative?
Another first by Just for the UK equity release sector – one we’re really proud of. The green lifetime mortgage from Just offers discounted interest rates to new customers whose property has an A or B rated Energy Performance Certificate. And it supports the UK Government’s Green Homes Grant scheme which offers financial support to homeowners to make their homes more environmentally friendly.
With regard to funding, there is a surplus of funding available in the UK equity release market, while a number of equity release markets in continental Europe are under-funded. What opportunities do you see for new investors and funders in the European equity release market overall?
A recent report from EY in the UK estimated that there was £6bn p.a of available funding for equity release, however the market size was just under £4bn p.a. Most of this funding supply comes from life insurers active in the Defined Benefit De-risking market – equity release mortgages are a very good ALM match for the insurers’ long-dated illiquid liabilities – which is the fastest growing life insurance market in Europe, the funding supply from this sector is expected to grow even further in future years. Therefore, I expect UK life insurers to increasingly look towards European equity release markets for funding opportunities. The funders will require scale, robust customer standards and harmonised standards and products features across the EU markets.
Anders Larsson, CEO of Svensk Hypotekspension AB in Sweden, shares his perspective on the development of the Swedish equity release market in the light of increasing knowledge and recognition of the product.
How would you describe the current market for equity release in Sweden?
The market is steadily growing mainly due to the fact that the recognition of equity release (ER) has increased dramatically over the last years as a result of heavy marketing. The entry of a second ER player will also help increase the demand for ER, as well as the steady increase in house prices.
What has been the impact of COVID-19 on the sales process, noting that Sweden has taken a different approach to dealing with the pandemic as compared to many other European countries?
There has been very little impact on the sales process, except for the personal meetings with customers. We have no problem running the business with the sales personnel working partly from home.
What importance do you attribute to putting in standards to protect consumers, in Sweden and across Europe?
The existing standards are very important. I’m not sure that further standards are needed.
What opportunities do you see for new funders and investors to enter the Swedish market, and the European market more broadly?
For Sweden I think there might be room for one more ER player.
How do you assess prospects for growth in the equity release market in Sweden for the year to come?
I anticipate there will be continuous marketing in four main channels: TV, direct mail, digital and newspaper print ads. The increasing knowledge of ER will also generate more and more sales following recommendations from friends. And again, the growth potential comes down to house price development.
Thor Sandvik, Founder and CEO at LittExtra AS in Norway, explains how the equity release market in Norway is shaping up in the light of COVID-19 and how the business has been adapting its sales and marketing practices in the digital era.
How would you describe the current market for equity release in Norway?
In 2020, the volume of new lifetime mortgages is down 25% year on year. Pre COVID-19 we were off to a good start, but in the middle of March everything slowed down. Banks offering equity release trimmed loan-to values (LTVs) due to a perceived increase in house price risk. The Ministry of Finance also stimulated mortgage lending in the wake of COVID-19 by increasing the banks’ flexibility to grant loans in breach of requirements in the residential mortgage lending regulations. Suddenly lifetime mortgages started facing more competition from interest-only mortgages and home equity lines of credit.
House prices have taken everybody by surprise. Due to lower interest rates, house prices are up 8% over the last 12 months. The Ministry of Finance does not see the need to stimulate the mortgage market any longer and restrictions on debt servicing capacity are back in place. Our banking partners have also mostly reversed the reduction in LTVs. We are in the middle of second wave of COVID-19, but it seems like demand is starting to pick up, even though loan customers are in no rush to release equity.
How have equity release providers in Norway been adapting their sales and marketing processes in the light of COVID-19? To what extent can providers conduct their business by digital means in the country?
Sales and marketing have mostly been based on seminars with large groups of people. This type of activity stopped overnight in March. The traditional seminar with coffee and sandwiches has been replaced by webinars. Webinars seemed like an obvious alternative. Thus far the webinars have not been the success we hoped for. The target group has certainly moved online, but it seems like the typical customer would prefer a seminar to a webinar. During the pandemic webinars will still be an important part of our sales and marketing efforts.
In Norway the processing of loans is 100% digitalized. Electronic identification using BankID meets the official requirements that apply to identity verification and binding electronic signature. BankID is used by all the banks in Norway and can be used by all organisations and enterprises that are looking for secure and simple identification online.
How would you characterise the regulatory framework for equity release in Norway? Do you see active interest from policy makers in growing the market?
Before our lifetime mortgage was launched in 2005 we had extensive discussions with the Financial Supervisory Authority (FSA) about equity release and product characteristics. These discussions secured a basic understanding of the logic behind a lifetime mortgage within the FSA. Today we are able to discuss with the FSA why a lifetime mortgage should be exempted from new mortgage regulation without having to start by explaining what equity release is all about.
We do not see any active interest in growing the market, but the policy makers will lend us an ear when we point out the differences between an ordinary mortgage and a lifetime mortgage.
What opportunities do you see for new funders and investors to enter the Norwegian market?
In Norway the lifetime mortgages are assets on the bank’s balance sheet. The banks do not securitize these assets. Today lifetime mortgages amount to a relatively small percentage of the balance sheet, and funding is currently not a problem. With strong growth in lifetime mortgages that may change down the road.
How do you assess prospects for growth in the equity release market in Norway for the year to come?
A pension system with mostly defined contribution plans in times with zero interest rates will cause a sharp drop in income when people retire. With homeownership as high as 90% in the 60+ age group, I am very optimistic long term. For the next year – still struggling with the pandemic – I am cautiously optimistic.
Friedrich Thiele, CEO of Deutsche Leibrenten Grundbesitz AG and EPPARG Board Associate, highlights that while the market for sustainable old-age financing products on the basis of a real estate pension is underdeveloped in Germany, the market potential is fully comparable to the highly developed markets in English-speaking countries.
As a key player in the home reversion market in Germany, how would you describe the current market for equity release in the country?
The German property annuity market is still in a very early stage of development.
This would also mean providers who are in the market for the long term still need to enlighten a large share of the market about this kind of old-age financing. Since this product of the English-speaking world, the reverse mortgage, is not offered in Germany, an active awareness of the advantages of real estate pension first needs to be established.
Basically, there is a great market potential for a fair, safe, transparent, and convincing old-age financing product based on a real estate pension in Germany, fully comparable with the potential in English-speaking, already developed markets. Providers like Deutsche Leibrenten Grundbesitz AG are therefore on a very promising growth track.
How have German equity release providers been adapting their sales and marketing processes in the light of COVID-19? What are some of the challenges?
The COVID-19 pandemic has been a major challenge for all providers. All regional agents, brokers and experts had to completely cease their activities during the first lockdown phase. Customer events have not been possible for months. All suppliers have responded with special hygiene concepts, which were also well received by customers. The switch from consulting to digital concepts was only hesitantly accepted by our clientele, as many of them are not fundamentally technically inclined. However, the range of individual and, in some cases, digital consulting concepts has increased significantly and has led to a sustained improvement in the quality of the service offered.
A particular challenge has been notarizing real estate transactions before a notary, which is legally required in Germany. A real estate pension can therefore not be concluded digitally. Here too, however, general hygiene concepts have been developed by German notaries, which were widely accepted by customers. In addition, notaries are regarded as system-relevant providers who were also allowed to offer their services during the lockdown period.
To what extent do you think it is important to develop standards for home reversion and other equity release products?
In order to ensure long term market success, it is imperative that uniform market standards apply to all players. In particular, a high-level consulting process and its documentation, as well as a transparent presentation of the product with all costs and risks involved for the customer, must be clearly presented. A lasting product must be fair, safe, and customer-oriented and should in any case economically cover the longevity risks of senior citizens. Products in which a real estate risk (e.g. assumption of the negative equity risk) and longevity risks are not assumed should be subject to government regulation in order to prevent the risk of mis-selling at the expense of senior citizens.
What opportunities do you see for new funders and investors to enter the German market?
The market for sustainable old-age financing products on the basis of a real estate pension is still completely underdeveloped in Germany. The market potential is fully comparable to the highly developed markets in English-speaking countries. A significant growth potential for both providers and investors can thus be found in making the real estate assets, bound in the hands of seniors, and desperately needed to cover the economic costs of longevity, available through intelligent real estate pension products.
How do you assess prospects for growth in the German equity release market for the year to come?
Due to its current niche significance, the market for real estate pensions in Germany still has the potential to double on an annual basis. The short-term objective should be to increase sales from around half a billion euros to 1 billion euros per year. In the long run, the total market potential is certainly several times higher.
David Burrowes, Chairman of the UK Equity Release Council and an EPPARG Board Member, explains how the UK market has adjusted to the challenges of operating safely in a pandemic, and the importance of standards to the safe growth of this socially important market.
How would you describe the current market for equity release in the UK?
Despite the uncertain climate, the market has adjusted well to the challenges of operating safely in a pandemic.
Our latest figures for Q3 showed a steady return to something closer to normal activity over the summer, after the market weathered the initial impact of COVID-19. The pick-up was helped by a mix of new enquiries and delayed cases from earlier in the year. We are hopeful and indeed confident that as the industry and our customers are becoming more able to deal with the restrictions that COVID brings, the market will develop and grow over the coming months and years to meet the ever changing needs of our consumer base.
The UK Equity Release Council has recently published its Q3 market statistics for the UK, what are some of the main findings?
The figures showed a steady return to something like normal activity. Key findings were:
How has the UK market been adapting its practices in the light of the COVID-19 pandemic? Has the pandemic led to new and innovative ways of engaging with customers?
As a consumer-focused trade body, we are responsive to and closely monitoring the developing situation with COVID-19.
Our members are very much sensitive to individual consumers’ circumstances, particularly those with potential vulnerabilities. A major initiative by the Council was a temporary modification of our face to face legal advice standard, following consultation across our membership, to enable remote legal advice with appropriate safeguards. Delivering this swift initiative ensure the market stayed open and demonstrated the strength of the Council as the representative body for all major players in the UK market from lawyers to financial advisers to providers and funders.
Although this new modification required a more onerous process, this has been popular with many of our customers. Inevitably technology is being used more and more for virtual meetings with respect to financial advice, although our Financial Regulator has guided that face to face meetings are possible if it is absolutely necessary (clearly with the obvious safeguards).
The Equity Release Council (and its predecessor SHIP) has been a pioneer in establishing standards for the equity release industry and is seen as a reference at global level. What importance do you attribute to the role of standards in safely growing the market in the UK and beyond?
We are proud of the work that we have done in conjunction with our members to develop high standards across the industry.
Our safeguards and protections enable consumers to trust that equity release is safe and reliable. It is through our standards that we lead a consumer focussed market and accordingly we believe they are core to the safe growth of this socially important market.
The evolution of our standards has been a key feature of our work over the last two years. Following a major consultation with members, our financial regulator and Government, we have developed an outcomes and principles based standards which we believe are the ‘gold standard’ for later life property based lending in the UK.
We continue to evolve our standards and following a major ‘oversight’ review earlier this year to ensure that our standards are meaningful for our members and consumers we are in the process of recruiting a Risk and Compliance team.
How do you assess prospects for growth in the UK equity release market for the year to come?
The core drivers for the growth of the UK equity release and later life lending markets are strong. This is underpinned by three pillars.
First, consumer demand as our ageing population grows fast and requires additional funding to support their needs in later life, whether it is inadequate pensions savings or to adapt a property for care needs.
Second, the market has attracted major financial companies who have developed a range of attractive products options for consumers. In the last two years we have seen product options grow from 48 to over 300!
Thirdly, the Council sets the standards and protections which enable consumers to trust that equity release is reliable and strong.
Claudio Pacella, CEO of 65Plus – Gruppo Mutuionline in Italy and an EPPARG Board Member, shares his outlook on the Italian equity release market, and highlights the key role of funding in further development of the market.
How would you describe the current market for equity release in Italy?
Equity release in Italy is split between Reverse Schemes (Nude Proprietà) and Equity Release Mortgages (Prestiti Vitalizi). Nude proprietà has existed for a long time in Italy and accounts for a volume of 20-25,000 transactions each year, while Prestiti Vitalizi (PIV) has only existed since 2006, with regulation being recently updated in 2015.
Equity Release Mortgages are expected to grow since they are offered by regulated players with strict transparency procedures and in line with a ‘best practice experience’ curve, while Nude Proprietà operates based on a P2P process without any guarantee or standard process: the transactions are left to an unregulated negotiation between the parties, where the elderly are often on the weaker side.
How have Italian equity release providers been adapting to the pandemic? Is your company 65Plus able to conduct its business using online instruments? What are some of the challenges?
The pandemic has reduced the volumes originated, due to a market based on in-branch contacts with potential clients. Current players did not adapt that much, in relation to Prestiti Vitalizi.
A full digital process will be available in the first half of 2021, except for underwriting that remains an on-site step, since in Italy this is performed with a public notary.
The main challenge in Italy is still funding availability; this bottleneck has also led to a lack of offers, which could be addressed more rapidly if the funding need was fixed.
Your company 65Plus has joined forces with Gruppo MutuiOnline. What can you tell us about this collaboration?
Within Gruppo MutuiOnline, 65Plus is currently creating a joint offer with Centro Finanziamenti, the financial arm of the Group. Centro Finanziamenti will originate the loans as a lending entity, while 65Plus (as the product specialist) will be contributing through product design, distributor support and servicing.
Given that MutuiOnline is the biggest Business Process Outsourcer in the Italian banking arena, this initiative can rely on a strong operational base, which will allow for fast growth.
Concerning distribution, many agreements with nationwide major players will be operative.
What opportunities do you see for new funders and investors to enter the Italian market?
Italy is an opportunity, both in terms of volumes and quality, for both national and international new funders. The potential market is huge, since real estate held by over 60s are worth over € 1,5 trillion, while 1.5 million families are actually “house rich and cash poor”; this leads to a potential market similar to what we see in the UK.
On the quality side, we can agree that Italy now has a rather stable real estate market, where periodic fluctuations indicate that we have now more upside then downside value.
This is a market that has been established over the last 14 years, with thousands of loans underwritten and no reputational or legal issues.
How do you assess prospects for growth in the equity release market in Italy for the year to come?
As mentioned, growth will be led by funding availability. Potential clients, distributions, operations and servicing are already available on the market. What we are seeing is a growing interest from institutional investors. For this reason, we are confident that 2021 will be a year of change, leading to a fast-growing market, with a view to closing the big gap that we have today with the UK market.
Politicians and institutions are also spotting the social and economic positive impact of greater development of Prestiti Vitalizi. We are confident after 14 years of careful seeding of the product.
Pedro Pinto Coelho, Chairman and CEO of Banco BNI Europa and EPPARG Board Member, shares his views on prospects for growth of equity release and cross-border funding against the backdrop of COVID-19.
You have experience of cross-border funding of equity release in Europe, noting that Banco BNI Europa from Portugal, of which you are Chairman and CEO, launched a collaboration with Óptima Mayores of Spain in 2018, to fund reverse mortgages on the Spanish market. What is your assessment of opportunities for further cross-border funding on the continent?
I believe there is an opportunity for financial institutions to really play a role in the European market. However, historically they have limited themselves to the local market which is the one they are more comfortable with. Now with the digital instruments and with an established network of brokers and servicers, I believe banks and other investors can really create a pan-European origination platform which will allow scale and will diversify their risk geographically.
What can be done to stimulate the market in cross-border funding? Do we need greater harmonisation of the regulatory frameworks in Europe?
To stimulate the cross border market one has to have support from regulators and have an harmonised legal framework. It should be no different from the way consumer protection works in each country and the way capital requirements are set by the different regulators. Only then we can really create a true and borderless pan-European market.
To what extent can governments in Europe use equity release as a partial solution to the ‘pensions gap’, at a time where governments are becoming increasingly indebted in the light of the COVID-19 pandemic?
This particularly difficult economic environment should be used as a catalyst to introduce the equity release product as a way to unlock wealth from a number of families in need as they are usually cash poor and asset rich. There have recently been initiatives from national governments such as Malta, Colombia and Chile to sponsor this product and make it available to the population. I believe a combination of a government programs with no negative equity guarantees and a privately led program would allow a larger audience to have access to this product.
What do you believe will be the long term impact of the COVID-19 pandemic on the demand for equity release in Europe? How can adequate supply be secured on the funding side?
I believe there will be more need from families for such a product due to high unemployment rates and families trying to support their children. A number of senior citizens also had complementary income that may disappear and will require support. I think regulators should incentivise banks to provide this type of loans by reducing the capital requirements the same way they did with SME lending. Apart from pension funds and Insurance companies, I also believe state social security funds with their large pools of capital could be used to buy portfolios of lifetime mortgages.
What would be your message to potential funders, outside Europe, who may be looking at opportunities in the European equity release market?
My message is very simple and clear; Lifetime Mortgages are a great product, particularly in this low interest rate environment. It is a product that combines low levels of risk with high returns when compared with traditional mortgages. Moreover, this product will provide additional diversification to investors and has a very important social impact component.
The European Pensions and Property Asset Release Group (EPPARG) has today announced the launch of high level standards to promote growth of the home equity release market in Europe.
EPPARG has developed the standards, which are known as the ‘EPPARG 10’, through discussions with its members and associates which make up more than 75% of the home equity release market in Europe. The standards aim to build confidence in equity release solutions among both potential funders and customers, with a view to growing the European market, given that the product is still at a nascent stage in a number of European countries and non-existent in others.
The standards highlight that equity release mortgage products shall be lifetime products which enable customers to live in their main homes for their whole life, and set out the key terms and conditions regarding the provision of the product, which deal with repayment terms, the freedom of customers to transfer the loan to another suitable property, early redemption rights and interest rate options, among others.
In addition, the standards set out a number of conditions on consumer protection, to ensure that all information is provided to customers by competent, knowledgeable and duly authorised persons, and that a checklist must be signed by both the customer and provider before a contract for an equity release product is signed, among others.
Commenting on the standards, Steve Kyle, Secretary General of EPPARG, said:
“The home equity release market has been continuing to grow safely in Europe, and in recent months market players have been adapting to the ‘new normal’ in the light of COVID-19. Through the launch of our EPPARG 10 standards, we aim to contribute to the further development of a safe market across Europe, to the benefit of elderly homeowners.”
“There are clearly common demographic challenges across European countries, and we consider that home equity release can provide a partial solution to the ‘pensions gap’. Home equity release provides considerable social and economic benefits to consumers, and the new standards will help ensure that equity release is a safe financial option for elderly homeowners seeking to supplement their income.”
Lennart Grabe, Deputy Secretary General of EPPARG, said:
“There is great potential to build the home equity release market in Europe as a time where the continent’s population is ageing and national pension systems are under pressure. In countries where the product has become established, such as Sweden, we are already seeing that it can make a huge difference to the quality of life of elderly people, by supplementing the incomes of those who are asset-rich but cash-poor. There are significant opportunities for new funders and investors to enter the European market given that home equity release providers on the continent are under-funded at present.”
“We hope that the EPPARG standards will encourage the investor community to engage with companies in the sector and foster the development of cross border businesses within Europe and, why not, the world, based on similar sound basic product conditions and proper market behaviour”.
EPPARG, the European Pensions and Property Asset Release Group, has responded to the Consultation Paper on the 2020 Review of Solvency II launched by EIOPA, the European Insurance and Occupational Pensions Authority. Solvency II provides the framework for insurance regulation in Europe.
In its response, EPPARG highlighted concerns that the proposals made by EIOPA in respect of the Solvency II matching adjustment could stifle the growth of the equity release market in Europe.
Specifically, EPPARG considers that the provisions which deal with the matching adjustment would benefit from further clarification to provide that, in line with the definition of the fundamental spread, the allowance for financial guarantees in the matching adjustment should be based on the long term expected impact of the guarantee to a hold to maturity investor.
If this clarification is not made, in EPPARG’s view, the matching adjustment available on restructured lifetime mortgages may need to be adjusted to reflect the theoretical fair valuation of the no-negative-equity-guarantee (“NNEG”). Whilst including an allowance for the NNEG based on its theoretical fair valuation may be appropriate when deriving the fair value of lifetime mortgages, EPPARG does not believe that it is an appropriate measure to test the level of matching adjustment available on restructured lifetime mortgages.
EPPARG will continue to follow the Solvency II Review and to engage with EIOPA as appropriate as the process continues over the coming months.