Equity release in Spain

Now we have all adopted a healthier Mediterranean lifestyle and olive oil will ensure that we live to a ripe old age our need for income for longer is required. Many are now finding that  their pensions fall short and do not provide sufficient to cope with rising living costs and the dreams of a relaxed and comfortable retirement are sadly a distant memory. Mostly due to rising costs and the weak pound.

I see so many articles and advertisements promising an end to money troubles and the solution is merely to realise the equity you have tied up in your home – sounds simple enough but the area of equity release is vastly complicated. There are many different options available and the wrong advice can have catastrophic consequences .What I would really love to see printed though are THE RISKS and THE COSTS, and more importantly that the advisers are actually qualified and experienced in this highly technical area.

The schemes in Spain are advertised to either cure financial worries or Spanish Inheritance Tax!

Equity release is understandably an attractive option as many do not wish to downsize to a smaller property. Furthermore the costs associated with moving home coupled with potential sacrifices such as living in a less desirable area or further away from friends and family may mean that very little equity is actually realised and the whole exercise has a detrimental affect on those involved

For many people, their home is their single biggest asset even taking into account the current housing market. Equity release schemes allow the values to be unlocked from your bricks and mortar and for the right individual can be a great solution not just for income but for tax purposes too.
There are many different types of scheme available allowing extra income or cash sums from their homes and these plans fall into three generic categories, Reversion Plans, Lifetime Mortgages and Investment Mortgages, although you will see many different names which can often be misleading and confusing.

The Reversion plan is a common in the UK though is expensive in Spain due to the costs incurred when buying and selling. The scheme involves selling all or part of your home to a private company in return for a lump sum or monthly income provided by way of an annuity. Reversion schemes allow you to  remain in your property typically rent free. As a result of this right to reside in the property you will never receive the true open market value, moreover your age, health and sex at the outset will also determine the value with those older individuals in poor health receiving the greatest benefit.

Lifetime mortgages are specifically designed for older homeowners and will provide capital or income through the purchase of an income producing product with the capital raised. Lenders may specify a mortgage term but typically the contracts are open ended and no repayment is sought until the death of the borrower , the borrower leaves the property e.g long term care, or moving elsewhere.

The loan is ultimately repaid by sale of the property with any balance after full repayment and interest going to your estate.

In the UK,  Equity Release is heavily regulated by the Financial  Services Authority  with only those holding a qualification specifically on the topic able to advise. Unfortunately the same can not be said here in Spain. Furthermore, the trade body Safe Home Income Plans (SHIP) in the UK ensures that you will never fall into negative equity and you still have the right to move house under such regulated schemes.  Please note, SHIP does not exist in Spain and that the Spanish Home Income Plans are in no way connected or provide such security.
Equity release schemes may also affect your entitlement to State Benefits.

Investment mortgages, commonly described as equity release in Spain are something else altogether – high risk, high return, high loss. People here need to rely on stable mortgage rates, healthy investment returns and rising property prices to stay out of trouble. Indeed if this combination of returns happens it could be the best thing ever. If the reverse happens it will be the biggest disaster that could happen to you (including repossession).

One thing though – if the latter scenario unfolded it would indeed solve the inheritance tax problem as there would be precious little left for your heirs to inherit.

This information has been supplied by Siddalls. For further information contact Spain.Enquiries@siddalls.net

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