Risk and Equity Release Mortgages in the UK

Tripti Sharma, Declan French and Donal McKillop
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Tripti Sharma: University College Cork
Donal McKillop: Queen’s Management School

The Journal of Real Estate Finance and Economics, 2022, vol. 64, issue 2, No 5, 274-297

Abstract: Abstract Accessing elderly housing wealth through equity release mortgages (ERMs) continue to be the focus of policy debates about how to pay for social care and how to support retirement incomes in the UK. We demonstrate in this paper that the spatial concentration of this market in just a few regions is not due to demand but to the risks faced by suppliers. We show that by ignoring regional variations in No Negative Equity Guarantee risk in national pricing models providers cannot profitably supply these products outside areas of high house price growth. We also show that EU Solvency II capital requirements provide a further disincentive to supply ERMs in these areas. Government subsidies to product provision are also modelled and shown to be infeasibly high. We therefore conclude that the government policy focus on equity release as a means of tackling the challenges of an ageing population is misplaced.

Keywords: Reverse mortgages; Equity release; No negative equity guarantee; Solvency II (search for similar items in EconPapers)
JEL-codes: G21 G22 J14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11146-020-09793-2

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