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The Secrets of Successful Equity Release on Spanish Property

 

Wealth Warning
Equity Release on Spanish Property could well be the next big ‘miss-selling scandal’ to hit the expatriate community in Spain.
Why do I say this? Well, quite simply, many people are being encouraged to go into Equity Release without a genuine understanding of what they are actually doing, without sufficient knowledge of the risks (as well as the benefits) to allow them to form a balanced judgement as to whether or not Equity Release is appropriate for them, with unrealistic expectations of investment returns, no inkling of what could go against them as far as adverse interest rates or currency exchange changes are concerned and no protection whatsoever if anything does go wrong following negligent advice from the broker.

Defining/Quantifying the Risks
Equity Release can definitely be a very useful arrangement for many expatriate owners of Spanish property. They could reduce their liability to Inheritance Tax, release cash from the capital otherwise locked up in the property and/or create an income to supplement their retirement income.
However do make sure that the adviser explains carefully - in “non-jargon” language - all the associated risks. Here are the main questions you should be asking:

  1. “What would the effect be on my situation if interest rates were to rise significantly” and “what could I do about it?”
  2. “What would happen if the investment returns did not come up to projected levels?”
  3. “Is the proposed investment a suitable one in terms of risk and volatility levels for someone with my attitude to risk?”
  4. “If I borrow in one currency and invest in another, what would the effect be on my situation if currencies should go against me and what could I do about it?”
  5. “What would happen if property prices were to fall? How much would they have to fall by before the bank wanted its loan repaid?”
  6. “What would happen if my investment were to fall in bad markets – especially if that coincided with a fall in property values?”
  7. “What steps will you, the adviser, take to ensure that I am always kept fully in the picture?”
  8. “If anything does go wrong because I was given inappropriate advice - what rights do I have under the law?”
  9. “Do I have everything in writing (with copies of any relevant investment material) signed off by a director of the advisory company? Have they shown me evidence of their regulatory status, as well a copy of their Professional Liability Insurance Policy?”
  10. “Who will be keeping an ongoing ‘eye’ on interest rate movements, investment returns, property values and currency exchange rates so as to avoid potential disasters occurring? Will I get a written report each year on the state of my loan/investment – signed off by my adviser?”

It is simply not sufficient for Equity Release to be considered a sort of ‘one-off deal’, i.e. you buy it and then forget about it. It’s a long term arrangement that needs to be structured correctly and appropriately and then monitored regularly. Remember that, to achieve the IHT savings, the loan must be in place at death – and this, hopefully, will be many years in the future.

If you are in any doubt as to whether or not an Equity Release arrangement is appropriate for you then make sure you seek advice from more than one broker or adviser. Make sure they’re prepared to put what they say in writing and that you find out what comeback you have if it subsequently turns out that you have been given misleading or incomplete information which causes problems. Make sure they’ve got Professional Liability Insurance which covers their activities in Spain and also ask to speak to people who have already had the arrangement in place for at least 2 or more years - someone who has had actual experience of the scheme – and from whom you could expect an independent, unbiased opinion.

Ensure that your adviser is genuinely independent and able to offer you a number of lending sources from which you can choose the arrangement most appropriate to your particular circumstances. Beware of advisers who can only offer you one scheme - because that’s what they’re going to recommend even if there are better schemes available though other brokers. It shouldn’t matter to an adviser what Equity Release arrangement you use – all that matters is that it is one which is appropriate for you – and do make sure that you have, in writing, the reasons why a particular scheme is being offered over another.

All in all take sensible precautions on what is, in actuality, a very large financial transaction. Do not simply look at the benefits (great as they may be) - also look seriously at the risks. Do not enter into an arrangement which will give you sleepless nights. A good Equity Release Scheme will take away some of your worries - it should not add to them.

 

Offshore Money Managers CDS S.L., are one of Spain’s very few fully authorised and licensed expatriate independent brokers.

You can contact OMM on Freephone 900 808181 or by e-mail at info@offshoremoneymanagers.net or go to their website at
www.offshoremoneymanagers.net