The use of operating income from home equity in the UK and across Europe has grown at a high level in the year since the start of the COVID-19 coronavirus pandemic, and encompasses a larger share of the total UK population when directly compared to the US. Nonetheless, growth could become even more pronounced in the coming years for products that have more than a fleeting similarity to US reverse mortgages.
That’s according to David Burrowes, chairman of the UK-based Equity Release Council (ERC), in a presentation at the National Reverse Mortgage Lenders Association (NRMLA) virtual annual meeting earlier this month.
Europe’s Home Equity Release Growth Could Become ‘Supercharged’
The adoption trajectory of UK equity release products – sometimes referred to as ‘life mortgages’ or ‘life mortgages’ in Europe – is noticeably on the rise, and this is the hope of the UK. industry in the UK and for members of the European Union. Pensions and Property Asset Release Group (EPPARG) to expand what has been seen to more of the territory, says Burrowes.
“We are very excited about the growth prospects of the equity release,” Burrowes explained. “And certainly, we think we’re about to see turbocharged growth in this area. We have already talked about the size of the global equity release market exceeding US $ 50 billion per year, and my colleagues on the EPPARG board are very determined to make it a fair share in Europe.
EEPARG was originally established in 2012 and is designed to serve as a forum to create a dialogue between the stock release industry, European Union (EU) institutions and governments on pensions and release solutions of real estate assets in the same way as the most popular reverse mortgage product in the United States. States.
Much of the optimism surrounding the release of shares across Europe comes from where much of the region’s real estate wealth is concentrated, Burrowes says. While the populations of several EEPARG member countries are smaller than the size of the total population 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 the release of shares in Europe ”, explains Burrowes. “Our members in UK, Germany, Italy, Spain, Ireland, Sweden, Norway, Netherlands and Poland all have huge potential and we are starting to see growth. We have over 200 million citizen owners, ranging from 50% to 80%, and the majority of unencumbered real estate assets are actually owned by people over the age of 60.
“Unencumbered” refers to homes that no longer have a mortgage attached, that is, homes that are “freely and frankly” owned.
Similarities between American and European borrowers, headwinds
Observations from European stock release professionals indicate that the profile of borrowers between US and EU nationals is similar, especially with regard to the division between available assets and property, he said.
“We are finding that Europe’s aging population is rich in assets and poor in cash, which is probably no different from the cash flow problems Dr Barbara Stucki was talking about earlier,” Burrowes said, referring to the presentation of Stucki at the same event. “And our clients seem to want to stay independent longer. We believe that what is holding us back is probably more than people’s desire to stay home or to be taken care of, it is probably a number of different factors.
One of these factors is the very different approach that Europe is taking to elderly care, which has nationalized health and pension programs which could become strained in the years to come due to demographic changes, he said.
“Certainly the intergenerational tax burden and some of the ‘Pay As You Go’ pensions that we have in Europe are not sustainable,” Burrowes said. “We are seeing a huge percentage of GDP being allocated to the position of paying for the elderly, when in reality some of the elderly actually have reasonable amounts of assets. A new reflection is therefore necessary.
Reputation management and media landscape
Reputation is also a central concern of the European stock release industry, and it has established strict rules to ensure that reputation issues do not hamper the volume of the industry, Burrowes explains. Part of the strategy on this front is a conscious choice not to present a stock release option as the only way forward in terms of retirement funding, he explains.
“What we’ve tried to do is focus on maintaining a healthy reputation, and what we want to try to do is achieve a healthy equity release market through it. ‘Europe which recognizes that the release of shares in itself is not the complete answer,’ said Burrowes. “We still believe there are plenty of opportunities to improve retirement savings before people reach retirement, but the answer will certainly include freeing up home equity in some way. another one.”
Speaking of the challenges associated with maintaining reputation, Burrowes observed that it seems like bad news – which can come from regulation and business practices – always seems to travel faster than good news, which he is convinced of. that American reverse mortgage practitioners can relate to.
“Certainly my own experience of discussing with regulators and the press about national borders and the issues of bad sales practices in one country will always make media headlines in another country,” Burrowes said. “I think it’s worth it [equity release professionals across Europe and the U.S.] keeping in mind that we probably all share the same media atmosphere. The good news is that most of our member countries have a better perception of the release of equity in their home countries. We want to continue this momentum. “