Equity in the UK: Reverse Mortgage Demand Surging Across the Pond

With strong demographic trends and a relatively tiny market share, equity release products could be poised for an explosion in the United Kingdom.

At least that’s according to a pair of analysts from the actuarial firm of Milliman, who took to Financial Adviser — a publication of the Financial Times — to make the case for the future of reverse mortgages across the pond.

“Providers in the U.K. are increasingly tapping into the increased demand for new sources of income in retirement, with older homeowners releasing almost three times as much equity from their homes than they did two years ago,” Colette Dunn and Beatrice Male wrote in the piece, published this week.

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Once the domain of just two dominant firms, the so-called “equity release market” in the United Kingdom has since expanded to include a joint venture between Santander and Legal & General, as well as the Nationwide mortgage firm. And the reasons would likely sound familiar to U.S. reverse mortgage originators: British seniors have significant home wealth and want increased comfort in retirement.

“Even those retirees on the lowest income (average of £7,619 a year) have home ownership levels of 89%,” Dunn and Male wrote. “Previous barriers to equity release products taking off, and helping these retirees tap into their assets as a source of retirement income, have been largely shattered.”

Those barriers include a desire to leave a legacy for heirs, which research shows both retirees and their children are expecting less and less. Dunn and Male point to research showing that 89% of Britons aged 45 to 64 want their parents to spend their money in retirement, with just 45% of those aged 65 to 85 thinking they’d leave any cash for their children.

The pair also takes a few swipes at the U.S. market, saying the British market is relatively safer for a variety of reasons — including a sales structure based primarily on financial advisors and conservative principal limits. In addition, they draw a stark line between the possibility in the U.K. and the state of the Home Equity Conversion Mortgage market in the U.S. in the wake of lower principal limit factors introduced last fall.

“With Trump’s reforms, and some media commentary that the high costs associated with reverse mortgages in the U.S. are ‘not worth it for most people,’ it is not surprising that the reverse mortgage market in the U.S. is falling at an annual rate of around 12%,” they conclude. “The U.K. market is a different story, and is going from strength to strength.”

Written by Alex Spanko

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  • In England a boot is the trunk of a car. A sneaker in the US is a trainer in the UK. In the US a casket is a coffin but in the UK it is used for a jewelry box. In the UK, reverse mortgages can be an equity release product.

    In the US there is a huge difference between equity release products and reverse mortgages. In an equity release transaction, equity is released. Home equity is a math problem. Equity in the US real estate transactions on the other hand in the legal sense has to do with a bundle of rights. They include easements, right of ways, mineral rights, air rights, right to occupy property, appreciation rights, and partitions of ownership rights through common tenancy, share cropping, etc. An equity release product is not by definition a mortgage; otherwise, all mortgages are equity release products.

    Reverse mortgages in the US are plain and simple collateralized debt. The reverse mortgage lenders gains no equity rights in the home.

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