One British person signs an equity release deal in the UK every 12 minutes; in Spain, it’s not common.
After the worldwide credit crunch in 2018, the bank of Spain really restricted the banks in the services they can offer.
Private Equity Release companies and funds are now emerging and offering Equity Release to both ex-pat clients and Spanish nationals too.
There are many benefits of equity release to the homeowner.
If you own a property in Spain, without a very large mortgage, you may qualify.
In fact, for anyone with a property here, looking to access some of the value that has accumulated in it, a Spanish equity release deal can be the most simple way to do it.
It’s not like back in the UK where clients very often are “paying” compound interest on the loan, with the equity in the property.
There are, what we consider to be much more consumer-friendly options here in Spain.
Remember that the brokers or financial advisors need to make a profit so dont be surprised by their fees. You can always contact us here and we’ll get you in touch with some of the most highly recommended players in the sector.
So, what are the benefits to the consumer?
1. Equity release is a way to get a visa to remain in Spain.
Things weren’t bad enough with a worldwide pandemic since March 2019, but now British people realise some of the side effects of Brexit.
We have clients who have lived in Spain for 10, 15 or 20 years and against the best advice, still have not got their residency here. The law is clear, if you are a non-European, you cannot live permanently in Spain.
The most effective visa for our clients is the non-lucrative visa. The application process is complicated (as you’d expect!) but the big problem for many of our clients is that they need up to 54,000 euros in ready cash in their bank account within the next 24 months.
Clients are using the equity in their Spanish homes to meet this stipulation and therefore become eligible for an application to achieve a non-lucrative visa.
Here, in Spanish Solutions, we can take care of every aspect of the application right up to the stage in ten years when you may be eligible for a Spanish passport!
2. Equity Release gives you access to cash!
Sounds obvious. Many people in Spain, currently find themselves in a situation where they are “asset rich and cash poor.”
Like so many of our clients, you may have a property in Spain with the mortgage fully or nearly paid off. You may be living on a British pension that doesn’t leave much room for fun or entertainment. Possibly the biggest of all the benefits of equity release in Spain is because it offers access to this value.
Equity release in Spain currently works like this:
- To access equity release here you normally need to be a Spanish homeowner aged over 55. We have done deals for clients as young as 35.
- The Spanish high street banks are currently not offering the service, so you need to speak to any of the new breeds of equity release firms in Spain. We will talk to them on your behalf and make sure you are protected every step of the way.
- You can use the home equity release as you wish; travel, entertainment, health, a non-lucrative visa etc.
- Spanish Solutions have some tex efficient advice that we offer to all of our clients so as to protect their heirs after their day has passed.
3. There are different equity release products available in Spain.
If you’re considering the pros and cons of equity release in Spain it’s important to understand which product is right for you. You may want to consider the following:
- A lump sum lifetime mortgage. This is a common UK product as currently very rare indeed in Spain. Here, homeowners receive the funds in one lump sum. Interest and repayments are due but clients can defer this until after your death. Some clients start making them straight away. Spanish Solutions had a case recently where a family did not realise their “grandad” had taken an Equity Release deal in Spain. Worse still, it was this sort of arrangement and when he dies they owed 25,000 euro more than the value of the house.
- Viager. A version of the drawdown lifetime mortgage. Here, the cash is received in stages, as opposed to a single lump sum. One of our recent Irish equity release clients took this option because he told us he didn’t trust himself with a large lump sum. Instead, he takes 800 pm as a lovely top-up to his Irish pension.
- Sale and rent back. Clients sell their property to a corporation in exchange for a lump sum of around 75% of the value of the home. Additionally, they receive the right to rent the property back from the fund, for life at a dramatically reduced rent.
- Bare Ownership. Equity release is received as a lump sum and the owner reserves the right, legally, to remain there for a set time or in many cases for the rest of their life.
3. You don’t have to move to take advantage of the value in your home
Up to very recently in Spain, selling your home was pretty much the only way to access its accrued value. One of the benefits of equity release now is that you can do this without having to move. This can be enormously beneficial to anyone who has bought or sold a property in Spain before. Dealing with agents, banks, the notary, land registry and nosey neighbours can be a pain.
If handled properly, the payments received via equity release are virtually tax-free. Please consult our tax expert, Carlos for more information and this is not always the case. Please do talk to us before you agree to any offer.
4. We now have a legal precedent in Spain.
The majority of law offices in Spain have never dealt with an equity release process. They didn’t really understand it.
In Spanish Solutions, we’ve taken care of 100s of equity release conveyancing deals for our clients. We review the offers, and explain terms such as Usufruct and ‘no-negative equity guarantee’. This means that any debt and interest accumulated will never exceed the property’s total value.
We help our clients to protect the inheritance they wish to leave their families while ensuring they pay the right amount of tax at the time of the deal.
If the client prefers, we’ll even talk to the family in advance to make sure that everyone understands how it works.
We work with the Spanish public notaries, the land registry and the banks. Really the banks want to avoid these deals but we still get them done for our clients, even when there is a mortgage involved.
5. There’s no increase in monthly outgoings
Depending on the deal our clients go for, except in the case of sale and rent back, very often the recipient of the money, does not have to make any monthly payments. In fact, some clients use the money to pay off a mortgage, thus decreasing their monthly expenses.
This type of arrangement is very different to a traditional mortgage or a loan. These require that repayments begin almost as soon as the cash has been borrowed.
A word of caution.
We did have one client who had a very bad experience in the equity release process here in Spain. The company they worked with have since been closed down thankfully.
There are many benefits to home equity release in Spain, no doubt. This can create a lot of freedom for you in your old age. It’s not an option that is right for everyone though. It’s important to be aware of what could happen if you sign up for this type of finance and it goes wrong.
- The value of your property and therefore estate will reduce. The money has to come from somewhere. As a result of this obvious fact, what you’re able to leave behind as inheritance for your children will be less than it would have been without the equity release in place. If you plan properly, this situation can be 100% eliminated.
- You could also have problems if you want to repay early. We think most of our equity release deals are for life, or a specific time frame; for example 10 years. Details are important here. There could be fairly substantial fees and charges to pay if you don’t stick to the terms of the original contract.
- The sector is largely unregulated. Like any new financial product on the market, equity release can be open to some unscrupulous practices. We accept that the fund managers involved must make a profit, they are not here to act as a charity. We always want our clients to understand these fees and rules. I’ve seen some clients decide to go it alone, without using us for the conveyancing part of the deal. Luckily, it seems to be going ok for them. We strongly recommend all clients, even Spanish people to get a second legal opinion.
If you’re not sure what the terms and conditions mean, or how this will affect you, ask a Spanish legal professional. You can talk to an expert such as a solicitor and/or request this information from the equity release provider.
- Other options. The benefits of equity release are clear. Perhaps you dont qualify. For whatever reason, if this isn’t the best option for you there are other choices. Spanish Solutions can help if you decide to; downsize your home, sell off part of your land or take in a lodger to increase monthly income. Your tax situation may change, so again, talk to our Spanish tax department first.
These are just some of the benefits of equity release in Spain. Online we see many forums telling clients to avoid it as a Ponzi scheme. In our opinion; if you go ahead with this type of finance option, and deal with a reputable company, you’ll be fine.
Any questions you have, please just ask us.