Factors influencing the supply of Home Equity

Home Equity Release Products (“ERPs”) are innovative financial products that enableelderly, retired people to use their unencumbered houses as a source of income/fundingwhilst they continue to reside in them. ERPs are typically non-recourse loans and theclient is not required to service the loan or to repay the capital. The loan and outstandingamounts are normally settled through the sale of the property, either on death or whenthe client voluntarily vacates. This research is an exploration of the demand and supplyissues which affect the suppliers of ERPs (both internationally and locally). Interviewswere held with established suppliers in the United Kingdom (where the market is moreadvanced) as well as with a handful of financial services companies in South Africa.The ERP industry has grown slowly over the last decade. Factors such as increased lifeexpectancy, decreased savings rates and changing attitudes towards debt are just some ofthe driving forces of demand. However, the growth of the ERP industry has consistentlyfallen short of analysts’ predictions, highlighting some of the difficulties facing the market- not least of which, is to be accepted by both the market and government as amainstream option for the elderly who are often asset-rich but income-poor. There are anumber of impediments to market growth that are explored in detail within this research.In terms of the market for ERPs in South Africa, it was found that there should be demandfor such products as South Africa is facing similar macro-trends as the United Kingdom andother developed economies. However, South African firms face unique challenges. Itappears likely that demand would probably be limited, at this stage, to certain wealthgroupings. The higher interest rate environment would also have to be carefully managedand would most likely result in lower loan to values (LTVs). Based on the findings of theinterviews, a number of recommendations were made to the local firms