Reverse mortgage: liquidity without losing ownership rights.

Last year, the number of reverse mortgages increased by 2.7 times, and the market is anticipating the activation of this product. The launch of the reverse mortgage announced by Santander and Mapfre after more than a year of preparation is seen as a significant turning point in a market that generates great interest but faces challenges in its development in Spain.

The joint initiative of these two financial giants“This is the news we have been waiting for many years. It is a developing factor that will lead to the emergence of other similar announcements and, consequently, the growth of this sector,” says Ángel Cominges, president and founder of Optima Mayores, a broker in this type of insurance. “The entry of Santander and Mapfre into the reverse mortgage market has attracted great interest, and as a result, we have seen an increase in demand for this product,” says Julián Franco, co-founder of Mas Vida, a company specializing in consulting for the management of elderly people's assets.

The expectations that arose after the first announcement of the launch of Santander and Mapfre at the beginning of last year coincide with a sharp increase in the number of reverse mortgages concluded in 2022. According to the General Council of Notaries, 549 mortgages were signed. While this is not a large number, it is 2.7 times higher than the 197 mortgages signed in 2021.

The golden age of reverse mortgagesThe trend emerged after the financial crisis of 2008, when many pre-retirees decided that this product could serve as a supplement to their pensions. In 2009, 780 reverse mortgages were issued, and then the number began to decline to 149 and 111 in 2019 and 2020, respectively. These figures are far from those recorded in the UK, where 52,295 reverse mortgages were issued in 2022.

Reputation
The past reputational issues faced by financial institutions are impacting the market and are seen as one of the main barriers to entering this business. The decline in the prestige of this product occurred both due to problems caused by heirs when the apartment owner dies and due to the lack of interest from banks in retaining real estate after years of intensive work to clean their balance sheets of property. The situation has now changed, and the leaders of Santander and Mapfre have committed to improving commercialization to prevent conflicts.

Reverse mortgageThis is intended for homeowners over 65 who want to gain liquidity by securing a mortgage on their apartment while retaining ownership, allowing them to live there until death. The property owner takes out a loan from the bank, with the property itself serving as collateral. The loan can be received in installments or as a lump sum, and its amount depends on the bank's appraisal of the property's value, although this assessment is influenced by various factors, including the owner's age. A year after the owner's death, the heirs must repay the entire loan amount at an interest rate that usually slightly exceeds 6%. Otherwise, they risk losing the inherited property. It may also happen that when the heirs are ready to repay the loan, the repayment amount exceeds the property's value at that time. To avoid this issue, some proposals set the loan amount at a low percentage of the apartment's value.

Examples
A reverse mortgage for a 70-year-old person using 14% of the appraised value of an apartment worth 200,000 euros results in a one-time payment of 28,000 euros, according to Mas Vida. If the age increases to 75 years and the house is valued at 300,000 euros, the payment amounts to 63,000 euros.

But a reverse mortgage is not the only option offering liquidity to seniors; it competes with other products, such as naked ownership. With this alternative, the house is sold, but the seller retains a lifetime right of use. The owner receives a lump sum payment from the buyer while continuing to live in their home until their death, after which the buyer gains full ownership of the property. For the buyer of naked ownership, it is an investment in the future, as they acquire the house at a more affordable price. "Naked ownership is a more sought-after product than a reverse mortgage, and the type of client here is different," emphasizes Franco.

According to Mas Vida's calculations, a 70-year-old person with a property worth 200,000 euros can receive a payout of 100,000 euros. Those who choose a reverse mortgage hope to pay off the debt and keep their home in the near future, while those who enter into naked property deals give up their housing.

Proposals
Caser distributes its products through independent specialized intermediaries, such as Mas Vida, who explain the workings of this little-known product to the general public. If the mortgage owner is over 90 years old, the company requires the consent of the children. The reference interest rate for the mortgage is around 6%. The property must be a permanent residence and have a valuation of over 150,000 euros. Additionally, it must be protected by home insurance. The mortgage can be arranged with additional services provided by Caser Residencial or without them. These services include, in particular, medical assistance, legal advice, support and physical care, and personal service. The client can rent out the house, as they retain ownership, but the rental must be pre-approved by Caser.

Catalana Occidente has a mortgage in its product catalog designed for apartments valued at over 200,000 euros, and the client's monthly income must be at least 250 euros. Caja de Ingenieros requires that the owner be at least 70 years old. The apartment must be free of encumbrances, and a home agreement or pension is required, as well as an insurance policy against damage for the amount of the mortgage. The maximum loan amount is 60% of the property's appraised value, and the minimum monthly income is 500 euros.