Spain has a problem. The unstoppable increase in life expectancy and the low birth rate make the public pension model is increasingly unsustainable. All the studies (of the OECD, of research institutes, of universities …) indicate that in the medium term retirement pensions should be lower than the current ones.
Faced with this great challenge, haunt of Spaniards to buy houses can be a solution to this challenge. There is very little saving to complete the retirement pension, but a lot of real estate that could be used to generate income.
The Santalucía Institute (in collaboration with professors from the Carlos II University and the Jaume I University and the firm Airos) has developed a study in which he analyzes the different formulas that a private individual has to liquefy his real estate. That is, convert an illiquid asset as a floor, into a financial or life annuity.
The reverse mortgage, which was created 10 years ago and has had little commercial success, is the most famous formula, but there are other options such as annuities or the sale of naked property.
"Here there is a market durmiento that when you wake up, because the needs tighten, it will develop a lot," says Jorge Martínez Ramallo, partner of Aiors and co-author of the study.
1. Pure reverse mortgage
A person of 75 years owns a flat valued at 200,000 euros, but needs to have an income that completes his retirement pension. Go to the bank and ask for a loan of 100,000 euros. As a guarantee of the return of that capital, plus interest, he offers his own home.
Normally, that loan has a prefixed duration, although it can also be established with a credit line of which quantities are available depending on the needs.
When the loan expires, the client must return the money that has been available. If you do not have liquidity, you must sell your home. In case of death, the heirs keep ownership of the apartment, but they must return the loaned amounts to the bank.
"The problem is that in Spain there is a lot of attachment for the residence itself, and a lot of interest in leaving properties in inheritance, but this is changing," says Pedro Serrano, professor of financial economics at the Carlos III University of Madrid and co-author of the study.
Currently, financial institutions offer between 50% and 60% of the appraised value of the property. Of the few entities that commercialize in Spain the reverse mortgage is Optima Seniors, which has an agreement with the Portuguese bank BNI Europe to perform this type of operations.
2. Reverse mortgage with deferred life annuity
The lifelong reverse mortgage is the natural evolution of the conventional reverse mortgage. In this financial product, the need to repay the loan in the event that the client survives beyond maturity is solved, since the lifelong reverse mortgage will only expire at the time of death. Therefore, the person can continue to enjoy the home throughout its life cycle.
In practical terms, these are two products in one. On the one hand, the loan offered by a financial institution with the real estate guarantee. On the other hand, an insurance in the form of a life annuity.
When this is deferred, in the first years the individual receives a financial income in charge of the loan and, when it is finished, the annuity begins to be charged with a very favorable taxation.
Thus, a couple of 70 and 72 years old, asking for a reverse mortgage with a guarantee of a house of 300,000 euros, could charge 215 euros a month for the first 15 years, and then an annuity of 140 euros a month until the death of both of them.
"It may seem that the amounts are low, but when analyzed from a purely financial point of view, without attachments, the reverse mortgage with annuity can be a very attractive option," says Serrano.
3. Reverse mortgage with immediate life annuity
In the case of the reverse mortgage with immediate life annuity, the mortgage loan is entirely dedicated to financing the single premium of an insured annuity. The rent here is immediate, instead of deferred as in the previous section, by which the client begins to charge from the initial moment.
If the annuitant survives many years, he will continue to receive the life annuity throughout his life and enjoying the home until the moment of death. On the other hand, if he dies prematurely, he will have received very little life annuity, but his heirs will have to liquidate with the bank all the capital that was lent to constitute the rent.
"In the case of public pensions, everyone assumes that they can be contributing for life and then get sick and die without having just received their public pension, but when they ask for this with a life annuity, people are very reluctant. It's a cultural issue ", reflects Professor Serrano.
4. Housing pension
The Spanish civil law allows to sell a house but maintain the usufruct. It is what is called in legal terms to sell the naked property. The seller receives the amount of the operation, and will stay in the house until his death. You could also rent it.
"The amount you receive will depend a lot on your age, it is a person with advanced age, you will receive a price close to the market value, but if you are 65 years old, the buyer will apply a discount because you can not dispose of it. floor until after a long period, "says Jorge Martínez Ramallo.
The sale of the habitual residence for people over 65 years of age is exempt from IRPF. Specifically, the capital gain obtained by the difference between the sale price and the acquisition price will not support any type of taxation for income.
With the amount of the sale, the seller can, among other options, subscribe a life annuity insurance that ensures a periodic benefit until the moment of death. When this occurs, the right of usufruct is extinguished and full ownership is consolidated. In this way, the acquirer, who until then had only a limited property right, now has a full right.
The big difference with the reverse mortgage is that the heirs have no choice to keep the property.
5. Sale of housing
Another option available to the owner of a property is to sell it completely and convert the money received into a life annuity. When you get rid of your home you will have to find another place to stay (with a family member, in a nursing home …).
In return, the buyer will pay a market price (higher than the sale of the naked property). With this capital, it can constitute a higher life annuity. Both the sale of property and the collection of income have a very favorable taxation.
The great disadvantage of this formula is that the person can not continue to live in their home and their heirs can not acquire the property.