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Risk and Equity Release Mortgages in the UK

Author

Listed:
  • Tripti Sharma

    (University College Cork)

  • Declan French

    (Queen’s Management School)

  • Donal McKillop

    (Queen’s Management School)

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.

Suggested Citation

  • Tripti Sharma & Declan French & Donal McKillop, 2022. "Risk and Equity Release Mortgages in the UK," The Journal of Real Estate Finance and Economics, Springer, vol. 64(2), pages 274-297, February.
    • Handle: RePEc:kap:jrefec:v:64:y:2022:i:2:d:10.1007_s11146-020-09793-2
    DOI: 10.1007/s11146-020-09793-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Reverse mortgages; Equity release; No negative equity guarantee; Solvency II;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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