Equity Release & Capital Raising Mortgages

Of course, equity release isn’t for everyone, and you’ll want to know the potential pitfalls before you sign up for anything. Here are some of the downsides that you need to think carefully about before entering an equity release agreement:

• It won’t be possible to raise capital from part-time Spanish holiday homes
• You won’t receive the full, current market value of your home
• You’ll be reducing the inheritance that you leave behind for family
• There’ll be restrictions on how you can use the released funds
• You may have to stay in the home for a fixed period, even if you intend to move out
• Receiving a lump sum or monthly instalments could affect means-tested state benefits

Like any loan or mortgage, the amount that you borrow and the accrued interest must be repaid eventually. The longer interest accrues for, the more you’ll need to repay – which can sometimes end up being multiple times higher than the pay-out you received in the first place.

Raising capital in Spain can be a complex and delicate legal matter, which shouldn’t be undertaken lightly and should be handled by a professional. However, there are plenty of advantages to reclaiming some of the money you already invested in your home:

• You can take a lump sum, withdraw the money as regular payments, or both
• You’ll be able to live in the property rent-free for the rest of your life
• There are no property sale expenses – nobody even has to know it was sold
• You can use the money to fund whichever projects it was designated for
• The loan and interest won’t need to be repaid until you pass away
• You don’t need to worry about inheritance laws for your property

It really does come down to the individual and their personal circumstances whether equity release in Spain would be beneficial or not. You can always contact Fluent Finance Abroad for professional guidance if you’d like to discuss the appropriate course of action for your circumstances.

Generally, equity release isn’t readily available from retail banks in Spain. Most Spanish lenders only offer straightforward mortgages, where you purchase a property and pay it off in full in the agreed time-frame. It’s easier to raise capital through a private bank if you have a high net worth and your property value is large enough, but this can come with high rates.

While re-mortgaging has been frowned upon in Spain for the last 10-15 years, it’s slowly becoming more popular as demand from clients is increasing. It’s now possible for homeowners in Spain to release equity from their Spanish property if their mortgage has been mostly or fully paid off.

The choices are somewhat limited for Spanish equity release, but you may be able to release up to 60% of the property value. Whichever percentage the lender owns, they’ll be entitled to that percentage of the value if the property is sold. As it’s another kind of loan, you’re also likely to owe variable interest, which can be up to 4% above the 12-month Euribor.

In order to secure equity release in Spain, you’ll need to be clear about why you want to do this, and what exactly you’re raising capital for. Most, if not all, Spanish lenders will control the funds to ensure you’re using them as agreed – meaning you cannot move the money from equity release outside of Spain. Some may be flexible about this if the loan is low-value.

There are many myths surrounding equity release in Spain, due to a long-lasting reputation of mis-sold policies in the late 1990s and 2000s. Unfortunately, many people were the victims of scams during this time – but this highlights the importance of securing professional advice from a reliable source before jumping into anything.

We appreciate that raising capital from Spanish property is a big financial decision, which is why we always stress the necessity of a full evaluation of your personal circumstances before pursuing this type of equity release. When you come to Fluent Finance Abroad, we’ll explain every angle, so you’ll be making a fully-informed decision if you proceed.

Like a standard mortgage, you’ll be legally protected if you sign a carefully vetted equity release contract, so it’s a safe way to borrow when you do it right – there will be safeguards in place to ensure your home isn’t repossessed while you’re still living in it.

If you’re not sure whether equity release is right for you, ask yourself these questions:

1) Is your income/savings enough to meet your retirement needs?

2) Are you against the idea of downsizing to a smaller property to save money?

3) Do you have family or beneficiaries who you’d want to inherit your estate?

4) Are you unable to pay debts, such as mortgage arrears or property taxes?

5) Do you need to raise a deposit to purchase another property?

6) Have you got the funds to cover home improvements on your existing property?

If you answered NO to 1, 3, and 6, and answered YES to 2, 4, and 5, then equity release could be an ideal solution for you. Why not get in touch with Fluent Finance Abroad to discuss your options? Our team will be glad to assist you in making the most informed decision.