Demand for German home equity release soars tenfold
By Sara Seddon Kilbinger, Senior Reporter, REFIRE
Retirees selling stake in home to fund retirement
More and more property owners in Germany are selling a stake in their home to enable them to pay off other loans or to fund other dreams, particularly in retirement, according to partial sales portal, Wertfaktor.
The typical owner seeking to do this is around 65 years old, comes from northern Germany and is debt-free, according to Wertfaktor, which says that between the first half-year 2021 and the first half-year 2022, inquiries regarding such sales increased nearly tenfold.
‘On average, our co-owners want a payout of €193,210,’ said Wertfaktor’s managing director Christoph Neuhaus. The reasons for wanting more liquidity vary considerably, from the dream of buying a mobile home or a holiday home, to wanting to fund other plans.
In addition to Wertfaktor and the Volksbanken, private providers offering this form of real estate annuity include Deutsche Teilkauf, Engel & Völkers Liquidhome and WIR WohnImmobilienRente.
Most partial sales per inhabitant take place in the states of Schleswig-Holstein, Hamburg, Lower Saxony and Bremen. In Schleswig-Holstein, twice as many owners decide to sell a share of their property as the national average. This is followed in second place by Hessen.
The average sales price of single-family and duplex homes in the biggest cities in Germany varied between approximately €5,413 and €10,349 per square metre in the first quarter of 2022, according to Statista. Housing was most expensive in Munich, where the square meter price of houses increased from almost €5,400 in 2012 to €10,349 in 2022.
Are Germany’s economic woes also contributing to demand?
However, given the timing, Germany’s economic woes may also be fuelling recent enquiries. Inflation stood at 7.5% last month, following consumer prices rocketing by 8.7% in May, the highest level since 1974. Germany has been particularly badly hit in recent months by COVID-related supply chain problems and the war in Ukraine.
Nonetheless, not all people looking to sell a stake in their home are debt-free: around 23% of them still have a mortgage, according to Wertfaktor, which will acquire a stake of up to 50% in a given property.
As such, Germany is the latest country to jump about the home equity release wagon, which has long been popular in markets such as the UK, where equity release typically lets homeowners aged 55 and over release tax-free cash from the value of their home, either as one big lump sum or as a series of smaller sums.
UK equity release soars to new all time high
Interest in the UK is also soaring as living costs rise. People over the age of 55 used equity release products to unlock a total of £1.53 billion of property wealth in just the first three months of this year, according to statistics from the Equity Release Council (ERC). The 2022 first quarter figure was 14% higher than the £1.34 billion recorded in the fourth quarter of 2021 – previously the best quarter on record – and also 34% higher y-on-y.
A total of 23,395 new and returning customers in the UK used equity release products to access money from the value of their homes from January to March 2022, hitting a new quarterly high.
‘The popularity of equity release so far this year is the natural result of modern products offering greater flexibility and a property market where growth has far outstripped inflation, alongside an ageing population,’ said David Burrowes, chair of the Equity Release Council.
Inherent risks can make equity release problematic
That’s not to say that releasing equity in your home is without risk, according to real estate expert Peter Burk of the Institut Bauen und Wohnen, who notes that many contracts are based on a property going up in value. In some instances, when a property is sold (when the owner moves to a nursing home or dies), the loan provider receives their share of the sale price, which is contractually expected to provide a 17% increase in value. If the value of the property has not increased to that extent, the owner must make up the difference. Moreover, it is unclear what happens in individual cases if the company to which someone has sold part of their property becomes insolvent, for example.
Others in the industry also feel that home equity release benefits the provider more than the homeowner. As Steffen Sebastian, holder of the Chair of Real Estate Finance at the University of Regensburg, puts it: ‘It’s a good deal – but solely for the provider.’
Many senior citizens today own their own property but money can be tight, given shrinking pensions, higher food costs and living expenses. In addition, more providers are introducing a quasi-rent for homeowners, which will amount to 3% to 4% per year for the share sold. In addition, the original owners must also continue to pay maintenance costs. ‘Partial sale models are, in my opinion, on the borderline of legal trickery,’ Sebastian has said. ‘Contrary to what is advertised, it is not a sale, but an insanely expensive and risky loan.’