ERM Investment Returns are Worse than Even We Feared

In ‘Equity release sector releasing own equity’ I worried a bit about the dreadfully low returns  equity release firms were looking at from their investments in ERM mortgage loans. By dreadfully low, I meant negative for younger borrowers.

It turns out that I was over-optimistic.

ERM mortgage loans are unprofitable to lenders for many loans made to older borrowers too.

According to the Equity Release Council, average loan rates are now 4.01%.

The key point to consider is that the returns to lenders from ERM loans are strongly age-related. The older the borrower, the more profitable the loan. Consider the following figure:

As you can see, ERM loans aren’t profitable for borrowers under 70. For borrower couples of the same age, they aren’t even profitable for borrowers under 80.

As far as their investors are concerned, the equity release sector might as well shut shop.

More details in our latest paper.