The reverse mortgage was a failure. “This product only exists in theory”

When the reverse mortgage law was passed in 2014, the Internet was abuzz. It was feared that banks would become massively rich at the expense of lonely seniors. Meanwhile, reality brutally verified both the idea itself and social concerns from over a decade ago.

– Almost 12 years have passed and no domestic bank has even offered a reverse mortgage loan. This product only exists in theory. In turn, the popularity of annuities is low – notes Andrzej Prajsnar, an expert at the RynekPierwotny.pl portal.

He emphasizes that comparing the current situation with forecasts from years ago sometimes confirms the need to formulate forecasts carefully. Together with experts from the RynekPierwotny.pl portal, we decided to take a look at the so-called “reverse mortgage”.

The number of seniors in Poland is increasing

Demographic indicators leave no doubt. The number of seniors in Poland is increasing. Data from the Central Statistical Office (GUS) indicate an increase in the number of Poles aged 65 or over. If we look at the last decade, we see a jump of almost two million. The data indicate that the number of such people living in Poland increased as follows:

• 2015 – 6,076,418

• 2020 – 7,051,765

• 2024 – 7,725,050

– If we take into account the large “endowment” of older generations with real estate, a question may arise why a reverse mortgage loan has not appeared in the offer of domestic banks – wonders Andrzej Prajsnar.

Why are banks reluctant to offer “reverse mortgages”?

Well, why? After all, it was supposed to be a golden geriatric deal. The expert reminds that shortly after the adoption of the Act of October 23, 2014 on reverse mortgage loans, information appeared indicating that at least one of the larger domestic banks is interested in introducing a new financial product. In 2012, another large bank examined the sales prospects of a “reverse mortgage”. However, the interest has not yet translated into concrete decisions. Why?

– We are talking about a completely new financial product, which for the bank generates not only risk related to the value of the property in the future, but also to the longevity of the senior, says Prajsnar.

As he notes, the Reverse Mortgage Loan Act does not oblige the bank to pay a lifetime benefit, although such a variant would be more attractive to potential clients.

– However, we must remember that in accordance with the regulations adopted in 2014, the property becomes the property of the bank only one year after the senior’s death – under the additional condition that the heirs do not repay the debt. This is also an element of longevity risk, because it is not known when the bank will become the owner of the property – explains the expert of the RynekPierwotny.pl portal.

He explains that the bank must also take into account other risks. One of them is the risk of the senior not taking proper care of the property. Pursuant to the Reverse Mortgage Act, the bank client is obliged to maintain the property in a non-deteriorated condition, cover current operating costs and purchase insurance. However, attempts to enforce these obligations may be met with negative public reception. This is where another threat to the bank appears – the so-called reputational risk.

– It would be difficult for some seniors and their families to understand why the bank proposes a payment of the total amount, e.g. 50%. real estate valuations. Such a risk-related policy of the bank would be controversial – even despite the fact that the heirs will receive a possible surplus after satisfying the bank’s claims (i.e. the difference between the future value of the property and the amount paid by the bank, fees, commissions and interest). However, if the determined value of the foreclosed property is lower than the sum of the bank’s receivables, then, according to the act, the heirs do not have to pay anything extra, says Prajsnar.

Annuity still with limited popularity

Analysts of the RynekPierwotny.pl portal emphasize that banks’ caution regarding the introduction of reverse mortgage loans also results from observations of the commercial annuity market.

– These are financial products that assume the transfer of ownership of a senior’s real estate during his or her lifetime. So far, they have not been covered by detailed regulations, but are offered by specialized institutions (mortgage funds). It is worth recalling in this context the failure of the bill on lifetime cash benefits. In the past, mortgage funds themselves encouraged the government to regulate the market, notes Prajsnar.

The expert points to ZPF data, which shows that at the end of 2024, leading mortgage funds managed real estate with a total value of PLN 189 million.

– Knowing what the average value of the property was (PLN 468.9 thousand), we can easily calculate the number of properties to which the life annuity concerned (approx. 400). For now, we are not talking about a large-scale operation of mortgage funds. Perhaps the development of the professional annuity market will be a factor activating banks in the future, says Prajsnar.