How suitable are equity release mortgages as investments for pension funds?

Dean Buckner, Kevin Dowd () and Hardy Hulley ()
Additional contact information
Dean Buckner: The Eumaeus Project
Kevin Dowd: Durham University Business School
Hardy Hulley: University of Technology Sydney

The Geneva Papers on Risk and Insurance - Issues and Practice, 2024, vol. 49, issue 2, No 3, 259-269

Abstract: Abstract This article examines the claim that equity release mortgages, the U.K. equivalent of reverse mortgages in the U.S., are suitable investments for pension funds. We present valuation, stress test and scenario analysis results that suggest that equity release mortgages are unsuitable for pension funds because: (i) they bear returns that are typically below the risk-free rate; (ii) they are not hedges for annuity books, let alone good hedges; and (iii) they are heavily exposed to house price risk, which annuity books are not. Our results suggest that equity release mortgages meet none of these criteria to be suitable for pension funds and are almost entirely dominated by risk-free government bonds. We offer an explanation for why investors appear to be unaware of the low returns on equity release mortgages.

Keywords: Equity release; Equity release mortgages; No negative equity guarantee (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41288-024-00316-1 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:gpprii:v:49:y:2024:i:2:d:10.1057_s41288-024-00316-1

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41288/PS2

DOI: 10.1057/s41288-024-00316-1

Access Statistics for this article

The Geneva Papers on Risk and Insurance - Issues and Practice is currently edited by Christophe Courbage

More articles in The Geneva Papers on Risk and Insurance - Issues and Practice from Palgrave Macmillan, The Geneva Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().