Pedro Pinto Coelho: Lifetime mortgages combine low levels of risk with high returns
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.