Reifner Clerc-Renaud Perez-Carillo Tiffe Knobloch Equity Release Schemes in the European Union institut fur finanzdienstleistungen e.v.
Contents PREFACE I EXECUTIVE SUMMARY V TABLES XXIX FIGURES XXX 1. THEORY OF EQUITY RELEASE SCHEMES (ERS) 1 1.1 Definition 1 1.1.1 Descriptive (legal) definition: 'Mortgage', 'Reverse', 'Lifetime', 'Pension' 2. 1.1.2 Functional (economic) definition: 'Equity' and 'Release' 4 1.1.3 Additional elements: 'Owner Occupancy' and 'Pensions' 7 1.2 Forms of equity release 9 1.2.1 Sale Model ERS 10 1.2.2 Loan Model ERS 12 1.2.3 Comparison 14 1.3 Summary 17 2. METHODOLOGY... 19 2.1 Tasks, existing literature and stakeholders 19 2.1.1 Tasks of the study 19 2.1.2 Literature and internet resources 20 XIX
2.1.3 Meetings with stakeholders 21 2.2 Empirical survey 23 2.2.1 Individuals and organisations interviewed 23 2.2.2 Questionnaires 27 2.2.3 General overview of responses 30 3. SOCIO-ECONOMIC SURVEY 37 3.1 Markets for ERS 37 3.1.1 Volume 38 3.1.2 Developments - the UK example 46 3.2 Parties involved in ERS 49 3.2.1 Providers 49 3.2.2 Consumers 51 3.3 Products 54 3.3.1 General description 54 3.3.2 Data basis for the description of existing products 56 3.3.3 Common criteria for all ERS 59 3.3.3.1 Procedure 59 3.3.3.2 Personal restrictions 59 3.3.3.3 Property restrictions 64 3.3.3.4 Form of payments 70 3.3.3.5 Control of payments 72 3.3.3.6 Security of payments 73 3.3.3.7 Combined products 74 3.3.3.8 Contractual terms 74 3.3.4 Loan Model products 79 3.3.5 Sale Model products 84 3.4 Summary 86 XX
4. SOCIO-ECONOMIC ANALYSIS 89 4.1 Market analysis: Housing, credit and pensions 89 4.1.1 Opinions of stakeholders 89 4.1.2 Quantitative data on market conditions for ERS 91 4.1.2.1 Property market indicators 91 4.1.2.2 Capitalisation and mortgage markets 101 4.1.2.3 Pensions provision \... 106 4.2 Market barriers 117 4.2.1 Cultural barriers 117 4.2.2 Economic barriers 124 4.2.2.1 Credit and elderly people 124 4.2?2.2 Credit crisis and ERS 125 4.3 Risks and benefits 128 4.3.1 Benefits of ERS 128 4.3.1.1 Benefits for the providers of ERS 131, 4.3.1.2 Benefits for consumers of ERS 132 4.3.2 Risks of ERS 135 4.3.2.1 Risks for the providers of ERS 135 4.3.2.2 Risks for the consumer of ERS 142 4.4 Summary 155 5. LEGAL ANALYSIS - LEGAL FRAMEWORK AND LEGAL BARRIERS 161 5.1 General Overview 161 5.1.1 Historical background 161 5.1.2 Legal framework of ERS and legal definitions 163 5.1.2.1 Loan Model ERS 164 5.1.2.2 Sale Model ERS 169 XXI
5.1.3 Main barriers pointed out by national legal experts 170 5.2 Authorisation and Supervision 178 5.2.1 General licensing and notification required for credit provision... 178 5.2.2 Special admission rules for ERS 180 5.2.3 Supervision 184 5.3 Insurance law 187 5.4 Taxes and Benefits 188 5.4.1 Tax law 188 5.4.2 Benefits law 191 5.5 Consumer Law 192 5.5.1 Information and advice 194 5.5.1.1 Consumers information and advice 194 5.5.1.2 Other interested parties (family or dependency relationship) 199 5.5.1.3 Potential information requirements under EU law for Loan Model ERS 199-5.5.1.4 Independent advice 208 5.5.2 Early repayment 209 5.5.3 Compound interest (anatocism) 211 5.5.4 Amortisation 215 5.6 Soft law: self-regulation, codes of conduct and recommendations. 217 5.7 Surety law 220 5.7.1 Lack of data for risk evaluation 220 5.7.2 Transfer of title 222 5.7.3 Transfer of sureties 223 5.7.4 Mortgages for future debt 224 5.8 Bankruptcy law 224 5.8.1 Safety of assets in case of bank bankruptcy 224 XXII
5.8.2 Debt recovery in case of depreciation of home and consumer bankruptcy 225 5.9 Summary 226 6. COUNTRY REPORTS: INTRODUCTION 231 7. GROUP 1: MEMBER STATES WITH SIGNIFICANT ERS... 235 7.1 United Kingdom 236 7.1.1 General information 237 7.1.2 Products 239.3 Providers 245.4 Markets 246.5 Legal situation 248.5.1 Licence 249.5.2 Regular controls and Supervision 251.5.3 Regulation of intermediaries 254.5.4 Bank Law 255.5.5 Housing Law 258 7.1.5.6 Self-regulation - SHIP 259 7.1.5.7 Consumer protection legislation 262 7.1.6 Reasons for slower than expected development of the markets 294 7.1.6.1 Legal barriers 294 7.1.6.2 Economic barriers 296 7.1.6.3 Cultural barriers 297 7.1.7 Risks and benefits 299 7.1.7.1 For providers > 299 7.1.7.2 For consumers 300 7.2 Spain 307 7.2.1 General information : 307 XXIII
7.2.2 Products 311 7.2.3 Providers 315 7.2.4 Markets 316 7.2.5 Legal situation 319 7.2.6 Reasons for lack of further development of the markets 326 7.2.6.1 Legal barriers 326 7.2.6.2 Economic barriers 327 7.2.6.3 Consumer barriers *...-...- 328 7.2.6.4 Cultural barriers 329 7.2.6.5 Risks and benefits 329 7.3 Ireland 331 7.3.1 General information 331 7.3.2 Markets and products 332 7.3.3 Providers 333 7.3.4 Legal situation 334 7.3.5 Reasons for lack of further development of the markets 339 7.3.5.1 Legal barriers 339. 7.3.5.2 Cultural barriers 342 8. GROUP 2: MEMBER STATES WITH LESS DEVELOPED LOAN MODEL ERS MARKETS 345 8.1 France 345 8.1.1 General information 345 8.1.2 Products 348 8.1.3 Providers 351 8.1.4 Markets ' 1 352 8.1.5 Legal situation 354 8.1.6 Reasons for undeveloped markets 358 8.1.6.1 Legal barriers 358 8.1.6.2 Economic barriers 360 XXIV
8.1.6.3 Cultural barriers 365 8.1.7 Risks and benefits 368 8.2 Hungary 374 8.2.1 General information 374 8.2.2 Markets and products 375 8.2.3 Providers 378 8.2.4 Legal situation > 379 8.2.5 Reasons for undeveloped markets 381 8.3 Italy 385 8.3.1 General information 385 8.3.2 Products 386 8.3.3 Providers 388 8.3.4 Markets 388 8.3.5 Legal situation 389 8.3.6 Reasons for undeveloped markets 397 8.3.6.1 Legal barriers 397 8.3.6.2 Economic barriers 399 8.3.6.3 Cultural barriers 401 8.4 Finland 403 8.4.1 General information 403 8.4.2 Products 404 8.4.3 Providers 408 8.4.4 Markets 409 8.4.5 Legal situation 410 8.4.6 Reasons for undeveloped markets 414 8.4.6.1 Economic barriers 414 8.4.6.2 Cultural barriers 414 8.4.7 Risks and benefits 415 8.5 Sweden 416 XXV
8.5.1 General information 416 8.5.2 Markets, products and providers 417 8.5.3 Legal situation 419 8.5.4 Risks and benefits 420 8.6 Germany 421 8.6.1 General information 421 8.6.2 Providers and products : 423 8.6.3 Markets 426 8.6.4 Legal situation 426 8.6.5 Reasons for undeveloped markets 427 8.6.5.1 Legal barriers 427 8.6.5.2 Economic barriers 428 8.6.5.3 Cultural barriers 429 8.6.6 Risks and benefits 430 8.7 Austria 432 8.7.1 General Information 432. 8.7.2 Providers and products 433 8.7.3 Markets 434 8.7.4 Legal situation 434 8.7.5 Reasons for undeveloped markets 436 9. GROUP 3: MEMBER STATES WITH SALE MODEL ERS ONLY 439 9.1 Romania 439 9.1.1 General information 439 9.1.2 Products 440 9.1.3 Providers 441 9.1.4 Markets 444 9.1.5 Legal situation 446 9.1.6 Reasons for undeveloped markets 449 XXVI
9.1.6.1 Legal barriers 449 9.2 Bulgaria 451 9.2.1 General Information 451 9.2.2 Providers 451 9.2.3 Markets 452 9.2.4 Legal situation 452 10. GROUP 4: MEMBER STATES WITH NO ERS 455 10.1 Belgium 455 10.1.1 General information 455 10,.2 Markets, products and providers (none) 456 10..3 Reasons for undeveloped markets 460 10..3.1 Legal barriers 460 10..3.2 Cultural barriers 467 10..3.3 Risks and benefits 467 10.2 Malta 468 10.2.1 General information 468 10.2.2 Markets, products and providers (none) 469 10.2.3 Legal situation 471 10.2.4 Reasons for undeveloped markets 477 10.2.4.1 Legal barriers 477 10.2.4.2 Economic barriers 480 10.2.4.3 Cultural barriers 481 10.2.5 Recommendations of a Maltese expert group on ERS (2005) 482 10.3 Greece 486 10.3.1 General information 486 10.3.2 Reasons for undeveloped markets 487 10.4 Portugal 493 XXVII
10.4.1 General information 493 10.4.2 Markets and products (none) 495 10.4.3 Legal situation 496 10.4.4 Barriers 497 10.4.4.1 Social and cultural barriers 497 10.5 Poland 500 10.5.1 General information ;.. 500 10.5.2 Markets and products (none) 500 10.5.3 Legal situation 501 10.5.4 Barriers 501 10.6 Slovakia 503 10.6.1 General information 503 10.6.2 Legal situation 503 10.7 Denmark 505 10.7.1 General information 505 10.7.2 Mortgage market, legal situation and ERS 506 10.7.3 Reasons for undeveloped market 507 10.8 The Netherlands 510 10.8.1 General Information 510 10.8.2 Markets and providers 511 10.8.3 Products 512 10.8.4 Legal situation 516 10.8.5 Reasons for undeveloped markets 518 10.8.6 Risks and benefits 520 10.9 Other Member States 522 10.9.1 Cyprus 522 10.9.2 Czech Republic 523 10.9.3 Estonia 524 XXVIII
10.9.4 Latvia 525 Lithuania 526 10.9.5 Luxembourg 527 10.9.6 Slovenia 528 11. ANNEXES 529 11.1 Selected bibliography 529 11.2 List of ERS providers in the EU 537 11.3 Participation list of stakeholders 539 11.4 Participation list of legal experts 542 11.5 Glossary of some English-speaking definitions 543 11.6 Equity Release schemes - terms in the EU languages 547 Tables Table 1: Differences in design 15 Table 2: Research dimensions 29 Table 3: Participation by Stakeholder group 31 Table 4: Number of providers as indicated by national regulators 34 Table 5: Total amount of ERS (Loan Model and Sale Model) sold in 2007 39 Table 6: EU providers of ERS ; 42 Table 7: Development of ERS 47 Table 8: Age of users in practice 53 Table 9: Number of providers by type 57 Table 10: Overview on payment forms 72 Table 11: Loan to value ratio (LTV) 80 XXIX