Equity Release Mortgages: the Irish Experience
Equity release mortgages (ERMs), also called lifetime mortgages, have played an increasing role in generating income for retired home-owners. As new liquidity rules have reduced the supply of bank lending, so insurers have stepped in, encouraged by generous regulatory treatment for annuity writers. Some methods for valuing ERMs have proved controversial, particularly in relation to assumptions for future growth in house prices which determine whether the lender is able to recover the mortgage balance on the borrower’s death. As the volume of these assets grows on insurance balance sheets, there are concerns that insurers’ reliance on continued house price growth could make the industry less resilient to the next house market downturn.
This paper describes the basic products and illustrates alternative valuation methods with reference to Ireland and the UK. We summarise recent research and provide example calculations to illustrate the competing methods, highlighting areas of actuarial debate. We conclude with a discussion of the value of these products – both positive and negative – to society as a whole.
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