Factors influencing the supply of Home Equity

Date
2011-06-22
Authors
Stobie, Gareth
Journal Title
Journal ISSN
Volume Title
Publisher
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
Citation
Collections