Factors influencing the supply of Home Equity
Date
2011-06-22
Authors
Stobie, Gareth
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Abstract
Home Equity Release Products (“ERPs”) are innovative financial products that enable
elderly, retired people to use their unencumbered houses as a source of income/funding
whilst they continue to reside in them. ERPs are typically non-recourse loans and the
client is not required to service the loan or to repay the capital. 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 the demand and supply
issues which affect the suppliers of ERPs (both internationally and locally). Interviews
were held with established suppliers in the United Kingdom (where the market is more
advanced) as well as with a handful of financial 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 difficulties facing the market
- not least of which, is to be accepted by both the market and government as a
mainstream option for the elderly who are often asset-rich but income-poor. There are a
number of impediments to market growth that are explored in detail within this research.
In terms of the market for ERPs in South Africa, it was found that there should be demand
for such products as South Africa is facing similar macro-trends as the United Kingdom and
other developed economies. However, South African firms face unique challenges. It
appears likely that demand would probably be limited, at this stage, to certain wealth
groupings. The higher interest rate environment would also have to be carefully managed
and would most likely result in lower loan to values (LTVs). Based on the findings of the
interviews, a number of recommendations were made to the local firms
Description
MBA - WBS
Keywords
Home equity release products, Housing