Equity release mortgages in the UK: the regional characteristics of demand and supply

We consider the factors that affect regional variations in equity release mortgages (ERMs) in the 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 the simultaneous equations framework to analyse the number of ERMs (a proxy for the demand for ER debt) and the average loan-to-value ratios (LTVs), a proxy for supplied loan terms. We include variables covering demographic, demand, pricing and risk and 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 levels, state benefits, first-time buyer interest rates, female life expectancy, the mortgage price differential, house price growth and GVA. For the average LTVs, 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 living in southern, wealthier areas have greater access to, and take greater advantage of, ERM loans but require lower LTVs. Our key findings are generalisable across the many countries offering similar mortgage products and so our analysis offers insights for borrowers, lenders, and regulators.