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

Home Equity Release Products (ERPs) are innovative financial 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 affect 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 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 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.