Around 90,000 households in Germany could benefit from equity release to boost their retirement income, according to research by EconPol Europe.

Equity release is popular in the UK and US but is currently rare in Germany, EconPol stated. However, a reverse mortgage, using real estate assets could be used to close a pension gap – either in the form of a lump sum payment or as monthly pension payments.

EconPol co-author of the study, Karolin Kirschenmann, said: “Especially for those households who have invested almost everything they have in a home and have little in private retirement savings, a reverse mortgage can provide the way out of a difficult situation.”

As is the case with a traditional mortgage, the house serves as collateral for a reverse mortgage. The difference is that the loan amount comes due only when the owner dies or moves out. In addition to this credit model, consumers can sell their property and secure the right to continue living there for the rest of their lives with a guaranteed income.

In 2017, around six million German households over the age of 65 owned their property debt-free. However, EconPol said around 420,000 households in this group are not satisfied with their retirement income. In calculating the potential of the reverse mortgage market, the economists considered only owners of properties worth at least €250,000. While 90,000 of the households fall into this category, only about 42,000 of these have no other assets to improve their income situation.

“The market for reverse mortgages is still relatively small in Germany, but we see substantial potential for it to develop. Households that are reliant on additional income due to extreme hardship in old age are not the only ones that could benefit from this instrument. Wealthier households could also optimize their retirement and inheritance planning by opting to use reverse mortgages,” Kirschenmann said.

To tap this market potential, financial service providers would also need to receive further training and conduct relevant marketing activities, EconPol said.

Last week European Pensions reported on Deutsche Leibrenten Grundbesitz AG, a German property-based pension provider, raising an additional €25m via a convertible bond from institutional investors.

The equity release provider offers pensioners the option of selling their property without having to move out of their home. The sellers have a life-long right of residence based on legal usufruct principles – all fully notarised and entered with priority ranking in the land register – and receive a monthly pension and/or a one-off payment.

Deutsche Leibrenten currently owns more than 800 properties, making it Germany's leading provider of property-based pensions, and the company is Germany’s only member of the European Pensions and Property Asset Release Group (EPPARG).

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