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More than R450bn in property assets is tied up in retired homeowners’ hands, many of whom are cash-strapped and who can now supplement their monthly income through home equity finance – known internationally as a reverse mortgage.
The number of South Africans older than 60 is anticipated to grow over the next two decades from 5-million to 9-million. That is a significant niche market, says lending company Water Financial, which has introduced Freedom Finance for retirees over 70 who own a home.
Executive director Chris Loker says more than R10-million in Freedom Finance loans were approved in a proof-of-concept trial during which the company was inundated with prospective borrowers in excess of R100m.
The product offers pensioners access to a percentage of their home’s equity while they retain full ownership. The loan is settled on sale of the house or death, says Loker.
“The hypothesis is proven and we’re now investing in technology to service clients nationally while raising more lending capital. Our solution, while commercial, also addresses social, borrower and macro-economic needs. It’s a win-win for everyone,” says non-executive director Mike Freedman.
The company’s capital-raising process targets commercial financial institutions by offering attractive, risk-adjusted returns. The company is also approaching socially conscious impact investors.
Recently, a similar Canadian start-up, Fraction, raised C$289-million (about R3.5-billion) in a combination of equity and debt financing to take on the North American reverse mortgage industry with a fairer, more transparent solution for struggling homeowners.
“The market is receptive because Freedom Finance meets a high demand at reasonable cost,” says the company’s other non-executive director, Gidon Novick. “This business is designed to solve a situation inconceivable during an economically damaging pandemic for cash-strapped homeowners, but with the flexibility to exit if circumstances adjust.”
Water Financial’s board is chaired by former public enterprises minister Alec Erwin, who says Freedom Finance is in line with a recent policy paper by the World Bank that highlights reverse mortgages as a way to supplement pension income.
“In addition to releasing dormant assets, this lessens the burden on the state while introducing cash into the economy,” says Erwin.
This article was paid for by Water Financial.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.