Equity Release Mortgages in the UK: Regional Characteristics of Demand and Supply

Abstract

We consider the factors that affect regional variations in equity release mortgages (ERMs) in the United Kingdom (UK). These are a growing section of the market, but with regional differences in factors that affect demand and supply. We estimate a time series cross-sectional (TSCS) model within a simultaneous equation framework to analyse the number of ERMs (a proxy for the demand for ER debt) and the average loan-to-value (LTV) ratios, a proxy for supplied loan terms. We include variables that cover demographics, demand, pricing, risk, macroeconomic factors and regional dummies. For the number of ER loans, we find positive effects from net pension income and holiday costs, and negative effects from the average LTV ratio levels, state benefits, first-time buyer interest rates, female life expectancy, mortgage price differential, house price growth and gross value added (GVA). For the average LTV ratios, there are positive effects from gross pension income, average borrower age, holiday costs, and the risk premium, as well as negative effects from the number of ERM loans, female life expectancy, and the level of real house prices. Overall, households who are living in southern, wealthier areas have greater access to, and take greater advantage of, ERM loans but require lower LTV ratios. Our key findings are generalisable across the many countries that offer similar mortgage products and so our analysis offers insights for borrowers, lenders, and regulators.

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