The market for equity release products: Lessons from the international experience

Abstract

Home Equity Release Products (ERPs) are innovative fi nancial
instruments that enable elderly, retired people to use their
unencumbered houses as a source of income/funding while
they continue to reside in them, thereby seeking to address the
constraints of the life cycle hypothesis. The loan and outstanding
amounts are normally settled through the sale of the property, either
on death or when the client voluntarily vacates. This research is an
exploration of demand and supply issues that aff ect the suppliers
of ERPs (both internationally and in South Africa). Interviews were
held with established suppliers in Britain (where the market is more
advanced), as well as with several fi nancial services companies in
South Africa.

The ERP industry has grown slowly over the last decade. Factors such
as increased life expectancy, decreased savings rates and changing
attitudes towards debt are just some of the driving forces of demand.
However, the growth of the ERP industry has consistently fallen short
of analysts’ predictions, highlighting some of the diffi culties facing
the market – not least of which is to gain the acceptance of both the
market and government as a mainstream option for the elderly, who
are often asset-rich but income-poor. A number of impediments to
market growth are explored in detail in this research.