Legislative confusion limits reverse mortgages in Spain

In November 2022, the deputy governor of the Bank of Spain, Margarita Delgado, addressed the media at a seminar entitled "40 years of the mortgage market: challenges and trends in the industry" and uttered a phrase that went almost unnoticed. "In the past, attempts to introduce products such as reverse mortgages have had little success, either because of marketing mistakes or because they coincided with the onset of the 2008 crisis," she said.

Delgado was referring to a "complex product," as the guidelines issued by the Bank of Spain call it. In fact, a reverse mortgage is a financial product designed to enable older people to earn extra income from their homes without losing ownership or the right to use them. В''Past attempts to introduce products such as reverse mortgages have had little success.

A reverse mortgage is a special type of mortgage loan designed for people over the age of 65 who own their own home without encumbrances, allowing them to gain liquidity from that real estate without losing possession of a home they can use until they die. The product can be supplemented with a life insurance policy that guarantees them the same level of income for life.

In the course of the seminar 'Reverse Mortgages' of the Madrid College of Economists, Julián Salcedo, president of the Forum of Real Estate Economists, disclosed that 'in 2022, 550,000 mortgages were granted in Spain and only 629 of them were reverse mortgages'.''financial culture.

Rodrigo Robledo, CEO of CAM's Financial Policy and Treasury Department The reverse mortgage expires at age 90, and Robledo complains that "he can't stop getting life extension fees." To solve this problem, he suggests assistance from the administration, such as "increasing the monthly rent or helping his heirs with future housing, such as putting him in a public housing park. "

Notary When someone decides to sign a reverse mortgage, it's time to visit a notary to approve the terms. Carlos Entrena, a notary public, has approved about five reverse mortgages in his professional life. In his opinion, "what the banks are preparing is very complex'''model from a conceptual and legal point of view. One thing is maturity, another is termination of debt, still another is bank foreclosure. You have to distinguish between concepts', and with respect to claims, he argues that 'it's an ordinary mortgage with certain characteristics. I cannot allow it to be understood as a loan or credit. A reverse mortgage is not that, it is a guaranteed right to an obligation. That is the ridiculousness of the 2007 Act.".

A reverse mortgage is not a loan, it's a ridiculous piece of legislation.

Entrena offers solutions and warns of the many problems he sees with reverse mortgages. "I think it's interesting to combine it with partial payment of life insurance," he says. He warns o''heirs: "It is not necessary to have heirs to underwrite such products. Besides, an heir can come along at any time. I imagine those who sell this product set their own requirements, but the law does not require it. "

Execution Even the timing and future of the reverse mortgage does not appeal to the parties. "The debt has to be repaid by the heirs, even though the reverse mortgage expires at age 90, no one can claim that, it just expires and interest accrues. That's one of the main problems. The guarantee is only enforced when the borrower dies." "If the heirs don't pay, the bank acts, giving them time to think about whether they want to pay the rent through simplification. Another problem that needs to be addressed is that''researching a deceased person's inheritance'.

Mapfre and Santander As a result, Entrena says reverse mortgages "won't become popular unless you get rid of all these problems." In Spain, Mapfre is confident that the reverse mortgage it will market with Santander, which the Ministry of Economic Affairs approved earlier this month, will be successful, although it also recognizes that it is not a product for everyone. "Generations that now have 30 or 40 years will need a financial supplement to the state pension, which will always be present and will be fundamental," explained the vice president of Mapfre, who also asked for a "stronger defense" of such private pension plans by the state apparatus. The property market in Spain''has changed in just two years and the market and legislation need to adapt to the lifestyles of future generations.