Over R450 billion in real estate assets are tied up in retired homeowners’ hands, many of whom are cash-strapped and who now have access to a solution to supplement their monthly income through home equity finance – known internationally as a reverse mortgage.
With anticipated growth over the next two decades from 5 to 9 million South Africans over 60, this is a significant niche market, says lending company Water Financial who has introduced a solution called Freedom Finance for retirees over 70 who own a home.
Executive director, Chris Loker, said that over R10 million in Freedom Finance loans have been approved in a proof-of-concept trial during which the company has been inundated with prospective borrowers of more than R100 million.
The solution 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, Loker explained.
“The hypothesis is proven, and we are now investing in technology to service clients nationally while raising more lending capital. Our solution, whilst commercial, also addresses social, borrower and macro-economic needs. It is a win-win for everyone” commented non-executive director, Mike Freedman.
The company’s capital raising process targets commercial financial institutions by offering attractive risk-adjusted returns. It is also approaching socially conscious impact investors.
Recently, a similar Canadian start-up (Fraction) raised C$289 million 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 a reasonable cost” said 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” he added.
Water Financials’ board is chaired by former Public Enterprises Minister, Alec Erwin, who said Freedom Finance was in line with a recent policy paper by the World Bank which highlighted reverse mortgages to supplement pension income: “In addition to releasing dormant assets, this lessens the burden on the state while introducing cash into the economy,” said Erwin.
