By
Dean Buckner
The Eumaeus Project, UK
Kevin Dowd
Durham University, UK.
e-ISBN: 978-625-7501-76-7
Publishing Date: June 29, 2022
File Size: 4,686 MB
Length: xv + 223 pages (PDF)
Language: English
Dimensions: 13,5 x 21,5 cm
This Book is completely open access. You can freely read, download and share with everyone. 
• The UK equity release sector is permeated by poor valuation practice: as far as we are aware, not a single equity release firm is valuing its No-Negative Equity Guarantees (NNEGs) in a scientifically valid manner.
• This NNEG under-valuation problem is on a large scale and implies correspondingly large over-valuations of Equity Release Mortgages (ERMs).
• The Discounted Projection or ‘Real World’ approach used by the equity release industry is inherently flawed and produces valuations that violate bounds that are known to be inviolable.
• The only scientifically valid valuation approach is the Market Consistent approach, which is also the only approach compatible with accounting principles and technical actuarial standards.
• This manual provides a guide that explains how NNEGs and ERM should (and should not) be valued.
Acknowledgements
Disclosure Statement
Executive Summary
Part I
NNEG Basics
1. Introduction
2. Origin and History
3. The Basics of NNEG and ERM Valuation
Part II
Key Inputs
4. Loan-to-Value Ratio
5. Risk-Free Rate
6. Loan Rate
7. Net Rental Yield and Deferment Rate
8. Dilapidation
9. Volatility (I)
10. Mortality
11. Long-Term Care
12. Delayed Possession
13. Credit Spreads
14. Drawdown
15. Prepayment
16. Fees and Charges
Part III
Applications
17. Scenario Analysis and Stress Testing
18. The PRA’s Good Practice Principles
Part IV
Competing Approaches to Equity Release Valuation
19. The Market Consistent Approach
20. The ‘Discounted Projection’ Approach
21. The Tunaru Report
22. Just’s NNEG Valuation Model
Part V
Professional Standarts and Recommendations
23. Technical Actuarial Standards
24. Accounting Standards
Part VI
Recommendations
25. Recommendations for Good Valuation Practice
26. Recommendations for Governance
References
Dean Buckner
The Eumaeus Project, UK
Dr. Dean Buckner worked at the FSA and then the Prudential Regulation Authority and Bank of England for nearly 20 years, specialising in derivative and asset valuation and capital modelling in both the banking and life insurance sector. He is now retired from the Bank.
Kevin Dowd
Durham University, UK
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