The global equity release market could triple in size to $52bn by 2035, according to a new report from the European Pensions and Property Asset Release Group (EPPARG) and EY.
Drawing on data from 14 markets, the Global Equity Release Survey suggests that market participants remain bullish about the sector’s long-term growth potential despite a slight dip from last year’s $56bn projection. The report says that the global market currently stands at $17.7bn.
Getting to $52bn means a compounded annual growth rate of 11.61%; ambitious, indeed, by any standard, but not impossible. Markets such as the US and the UK are forecast to lead the charge, increasing from $7.7bn to $21.5bn and $3.1bn to $7.3bn, respectively, and these two countries provide the bulk of the global market size.
But some European markets – France, Italy and Spain – are forecast to deliver triple-digit gains.
For these markets to get anywhere near that level of increase, however, they need to overcome two hurdles: one operational, the other, structural.
“Funding and distribution are the difficulties that these smaller European markets face,” said Ben Grainger, Partner at EY in London and one of the report’s authors.
“Building a lender from scratch is doable, but some investors don’t want to take on ramp risk. For those that do, they will still need to be plugged into the financial services ecosystem of that country so that they can get the word out.”
Indeed, the report’s section on sources of funding in the market has expanded this year, asking survey respondents about levels of domestic funding and the changes that they anticipate seeing in how their markets are funded in the coming years and the responses are wide-ranging.
In France, they expect greater participation from domestic funders. In Spain, they see international institutional investors entering the market. And in the Netherlands and Italy, they see securitisation playing a greater role.
Established markets already provide product to the securitisation market, of course. In the US, the market’s primary funding mechanism is heavily based on securitisation; both the agency-backed Home Equity Conversion Mortgage product and reverse mortgages originated in the proprietary market are securitised. Canada, Australia and the UK all deliver mortgage pools to the credit capital markets as well.
But while securitisation offers a way to jumpstart newer markets, Grainger notes that building a mature, multi-tiered funding model will take time.
“Securitisations can mainly fund higher-interest-rate, higher-risk products, such as those with higher loan-to-value ratios, because the structure needs to deliver sufficient returns to generate investor appetite,” he said.
“Securitisation-based funding could be the first step to help prove the market in continental Europe, and once this is established, institutional balance sheet funders could be attracted to fund the lower risk, lower rate products.”
This year’s report also covers digitalisation and artificial intelligence. Survey respondents were asked whether they already use or anticipate that they will begin to use digitalisation/automation and AI as part of their processes within the next five years.
The former appears to be integrated quite considerably into market operations already, but AI, less so, particularly in the areas of know-your-customer and underwriting.
Pivoting to growth barriers, aside from the aforementioned hurdles that newer/smaller markets need to overcome, there are notable country-specific risks, such as capital adequacy rules in the UK being a headwind to bank participation in that market, and Polish participants reported that their space may benefit from better regulation.
But the other frustrations are long-established. Limited knowledge and awareness – and misconceptions about the product – remain prevalent, according to the survey. And the higher-for-longer interest rate environment isn’t helping, either. While the European Central Bank held rates steady at its most recent meeting, the Bank of England raised them on November 5th, the first increase since 2023. The US Federal Reserve hiked in September, and the Bank of Canada did so at the end of October.
If the global equity release market wants to hit that $50bn-odd in the next decade, while there is plenty of work to be done in all markets (not just the smaller emerging ones), it is going to need a little help from the macroeconomy.
“The customer demand challenge remains a critical one for equity release markets around the world, but it’s one over which the market has less control. When interest rates are higher, fewer customers want to borrow; activity in the UK halved when rates began rising recently, for example,” said Grainger.
“But regardless of market, if rates come down, other things being equal, the appeal of equity release as a retirement finance tool goes up, and so would activity. It’s important for all markets that participants continue to educate and innovate, but this is a space where the prevailing interest rate has a significant impact on the market.”
