Thor Sandvik: Demand for equity release is starting to pick up in Norway
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 The traditional seminar with coffee and sandwiches has been replaced by webinars.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.