Iñigo Hernández Alesanco: Demand for equity release solutions in Spain is increasing year on year
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.