Over R450 billion in property assets is tied up in retired homeowners’ hands, many of whom are cash-strapped.
Now they have access to a solution to supplement their monthly income through home equity finance – known internationally as a reverse mortgage.
With the number of South Africans over the age of 60 expected to grow from 5 million to 9 million over the next two decades, this is a significant niche market, says lending company Water Financial.
The company has introduced a solution, called Freedom Finance, for retirees over 70 who own a home.
Read the latest Property360 digital magazine below
Executive director Chris Loker says more than R10 million in Freedom Finance loans has been approved in a proof-of-concept trial. During this trial, the company was inundated with prospective borrowers.
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 home or death.
Non-executive director Mike Freedman adds: “The hypothesis is proven and we’re investing in technology to service clients nationally while raising more lending capital. Our solution, while commercial, also addresses social, borrower and macroeconomic needs. It’s a win-win for everyone.”
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. Non-executive director Gidon Novick says a similar Canadian start-up, called Fraction, recently raised C$289m (about R3.47bn) 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. 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 which highlighted 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.”
About Water Financial
Water Financial was founded in 2010 as a project to establish a South African financial services company channelling funding towards projects and organisations that are changing the world for the better, driven by a desire to “do” money better.
Freedom Finance comprises a loan to the value of a percentage of the borrower’s property, spread over five years when a new agreement can be entered into for a further five years.
This enables the borrower to access some of the value locked in their homes without the need to make monthly payments.
Alec Erwin, chairperson: A highly regarded academic who has served in an advisory and leadership capacity on a wide variety of boards.
As minister of trade and industry, he drew up South Africa’s current industrial development policy, which saw the implementation of Industrial Development Zones and Special Economic Zones to promote national economic growth and exports.
Mike Freedman, non-executive: His advertising career culminated in a cluster of international awards and, in 2000, he founded Freedthinkers to deliver insights and purpose-driven futures. He is chair of Impact Trust, a public benefit organisation aimed at a more sustainable, resilient future.
Gidon Novick, non-executive: Founder of Lucid Ventures, focused on building disruptive brands, he co-founded the recently launched LIFT airline and previously served as joint chief executive of Comair Group. Novick is also chairperson of SA Harvest, focusing on food security.
Chris Loker, executive director:
A fellow of the Institute of Life and Pension Advisers and a certified financial planner. He was formerly head of retail for a banking group and has more than 20 years’ experience in consulting as well as extensive finance, banking and investment experience.