The use of home equity tapping products in the United Kingdom and throughout Europe has seen a high level of growth over the past year since the onset of the COVID-19 coronavirus pandemic, and encompasses a greater share of the overall population in the United Kingdom when directly compared to the United States. Even so, growth could become even more pronounced in the years to come for products that have more than a passing similarity to American reverse mortgages.
This is according to David Burrowes, chairman of the U.K.-based Equity Release Council (ERC) in a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Annual Meeting earlier this month.
Growth of home equity release in Europe could become ‘turbo-charged’
The trajectory of uptake for equity release products in the U.K. – sometimes referred to as “lifetime mortgages” or “retirement mortgages” in Europe – is visibly on an upswing, and it’s the hope of the industry in the U.K. and for members of the European Pensions and Property Asset Release Group (EPPARG) to expand what has been seen to more of the territory, Burrowes explains.
“We’re very excited about the growth prospects for equity release,” Burrowes explained. “And certainly, we believe we’re on the cusp of seeing some turbo-charged growth in this area. We’ve already spoken about the size of the global equity release market being over $50 billion US dollars per annum, and my colleagues on the board of EPPARG are quite determined to make a fair share of that in Europe.”
EEPARG was initially established in 2012, and is designed to serve as a forum to create dialogue between the equity release industry, European Union (E.U.) institutions and governments on pensions and property asset release solutions similarly to the reverse mortgage product most prevalent in the United States.
Much of the optimism related to equity release across Europe comes from where much of the housing wealth in the region is concentrated, Burrowes says. While the population of several EEPARG member nations falls below the full population size of the United States, the market potential is at least comparable but with a higher level of overall adoption.
“[There is] huge potential that we have for equity release in Europe,” Burrowes explains. “Our members in U.K., Germany, Italy, Spain, Ireland, Sweden, Norway, Netherlands, and Poland all have huge potential and we’re beginning to see the growth. We have over 200 million citizens with homeownership, ranging from 50% up to 80%, and the majority of the unencumbered property assets are actually owned by those over 60.”
“Unencumbered” refers to homes which no longer have a mortgage attached, i.e. homes owned “free and clear.”
Similarities between American and European borrowers, headwinds
Observations from European equity release professionals indicate that the borrower profile between American and European nationals are similar, particulalry when it comes to the division between assets on-hand and property, he says.
“We are seeing that the aging population of Europe is asset rich and cash poor, which is probably not dissimilar to the cash flow issues that Dr. Barbara Stucki was talking about earlier,” Burrowes says, referring to Stucki’s presentation at the same event. “And our customers appear to wish to stay independent for longer. We are of a view that what’s holding us back is probably more than people’s desire to stay in the home or go into care, it’s probably a number of different factors.”
One such factor is the very different approach that Europe takes to elder care, which has nationalized health and pension programs that could become strained in the coming years due to demographic shifts, he says.
“Certainly the intergenerational tax burden, and some of the ‘Pay As You Go’ pensions that we have in Europe are not sustainable,” Burrowes says. “We are seeing a huge percentage of GDP being allocated to the position of paying for the elderly, when actually some of the elderly do actually have reasonable amounts of assets. So new thinking is needed.”
Reputation management and media landscape
Reputation is also a focus of the European equity release industry, and it has established strict rules in order to ensure that reputational issues do not hamper the industry’s volume, Burrowes explains. Part of the strategy on this front is a conscious choice not to present an equity release option as the only path to take in terms of retirement financing, he explains.
“What we’ve tried to do is focus on keeping a clean reputation, and what we want to try and do is achieve a healthy equity release market across Europe that recognizes that equity release by itself is not the whole answer,” Burrowes says. “We still believe that there is plenty of scope for improved pension savings before people get to retirement, but the answer is certainly going to include home equity release in some way or another.”
In speaking about the challenges associated with reputation maintenance, Burrowes observed that it seems bad news – which can stem from regulation and business practices – always seems to travel faster than good news does, something he’s confident that American reverse mortgage practitioners can relate to.
“Certainly, my own experience of talking to regulators and press about national boundaries and issues of poor sales practices in one country will still make media news in another country,” Burrowes says. “I think it’s worth [equity release professionals across Europe and the U.S.] bearing in mind that we probably all share the same media atmosphere. The good news is that most of our member countries have an improving perception of equity release in their home national states. We want to keep that momentum going.”