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Do New Zealand home equity release schemes provide value for money?

Author

Listed:
  • Benison Thomas

    (Motu Economic and Public Policy Research)

  • Trinh Le

    (Motu Economic and Public Policy Research)

Abstract

Home equity release refers to financial products that allow people to access the equity that is tied up in their own homes. Home equity is a large part of household wealth in New Zealand, making it an important asset that could potentially be used to fund retirement. However, the take-up of equity release products such as reverse mortgages is very low. This research examines whether home equity release schemes currently available in the New Zealand market provide value for money and how they might provide a suitable form of retirement income for some people. The available data confirm the existence of many households with low retirement income and high housing wealth, highlighting those who stand to potentially gain from home equity release. Assessments of the features and costs of current home release schemes, alongside worked examples using realistic values, highlight the scenarios when home equity release may (or may not) be beneficial. Depending on current circumstances and future financial needs, home equity release may be a suitable form of retirement income for some retirees but not for others.

Suggested Citation

  • Benison Thomas & Trinh Le, 2024. "Do New Zealand home equity release schemes provide value for money?," Working Papers 24_03, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:24_03
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    File URL: https://motu-www.motu.org.nz/wpapers/24_03.pdf
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    References listed on IDEAS

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    1. Sally R. Merrill & Meryl Finkel & Nandinee K. Kutty, 1994. "Potential Beneficiaries from Reverse Mortgage Products for Elderly Homeowners: An Analysis of American Housing Survey Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 257-299, June.
    2. Katja Hanewald & Thomas Post & Michael Sherris, 2016. "Portfolio Choice in Retirement—What is The Optimal Home Equity Release Product?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(2), pages 421-446, June.
    3. Makoto Nakajima & Irina A. Telyukova, 2017. "Reverse Mortgage Loans: A Quantitative Analysis," Journal of Finance, American Finance Association, vol. 72(2), pages 911-950, April.
    4. Wiles, Janine L. & Allen, Ruth E.S. & Palmer, Anthea J. & Hayman, Karen J. & Keeling, Sally & Kerse, Ngaire, 2009. "Older people and their social spaces: A study of well-being and attachment to place in Aotearoa New Zealand," Social Science & Medicine, Elsevier, vol. 68(4), pages 664-671, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Home equity release; reverse mortgage; wealth decumulation; retirement;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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