Homeownership remains a significant asset for future financial stability. As per the 2021 census by the National Statistics Institute (INE), three-quarters of Spanish households, or 75.5%, were homeowners. Despite a 3.4 percentage point decline over a decade, residential property continues to form the cornerstone of many families’ wealth portfolios.
Previously, unlocking liquidity from one’s house without selling it was a complex affair. Ricardo Gulias, the Executive Director of RN Tu Solución Hipotecaria, explains that reverse mortgages offer a lifeline to the senior population aged 65 and above. This financial product enables individuals to keep the ownership of their homes while receiving either a monthly income or a lump-sum payment. Recent data corroborate the growing interest in this solution: The General Council of Notaries reported a year-on-year increase of 299% in 2022, with 787 transactions taking place, up from 197 in 2021. Moreover, there was an impressive 77% uptick from 2021 to 2022, and the latest figures for Q1 2023 show 177 reverse mortgages.
Gulias points out that demographic ageing and the unpredictability of public pensions are driving the uptake of reverse house mortgages. However, cultural factors and misconceptions do act as barriers. Many families are hesitant because they traditionally want to leave their homes as inheritances for their children. Another issue is the general lack of understanding about how reverse mortgages work, causing apprehensions about loss of ownership.
When it comes to navigating the complexities of reverse house mortgages, Gulias stresses the importance of individual case assessments, taking into account factors such as the client’s age, marital status, and life expectancy, alongside the property’s value and characteristics. Expert advice is crucial for determining the profitability and for making an informed decision.
The market outlook for reverse mortgages appears optimistic. “More financial institutions are keen to include this product in their offerings,” says Gulias. This increased competition is beneficial for consumers, offering a broader and more personalised array of options. Initially popular in the US and the UK since the 1960s, the Spanish market for reverse mortgages is regaining momentum after a period of stagnation in 2018.
Taxation is another advantage; the annuities from a reverse mortgage are not subject to personal income tax. Post the owner’s demise, heirs have the option to either repay the mortgage loan on the house with their funds, sell the property to settle the debt, or secure a new mortgage to offset the borrowed amount.
HOUSE MORTGAGE: ANNUAL PERCENTAGE RATE OF CHARGE (APR) AND NOMINAL INTEREST RATE (NIR)
Acquiring a house is a long-term financial commitment for most, often requiring mortgage loans. As of Q1 2023, the average mortgage in Spain was €145,347, translating to a monthly payment of approximately €648. This comes amidst a backdrop of rising interest rates and increasingly stringent mortgage approval criteria. One common area of confusion is the distinction between the Annual Percentage Rate (APR) and the Nominal Interest Rate (NIR), both crucial metrics but serving different purposes in the home-buying process.
