Risk and Equity Release Mortgages in the UK

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.

Automated summary

This paper demonstrates that the concentration of equity release mortgages (ERMs) is not due to demand but rather the risks faced by suppliers. Ignoring regional variations in risk and capital requirements makes it difficult to profitably supply these products outside high house price growth areas. Government subsidies are also shown to be infeasible. Therefore, the government's focus on equity release as a solution for the challenges of an ageing population is misplaced.