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Equity release and home reversion

By: John Westwood

[email protected]

OVER THE past decade property prices in Southern Europe and, in particular, Portugal and Spain, have gone up substantially. While this is a most welcome development for property owners, it also brings to focus the importance of structuring this additional wealth. In principle there are two main issues property owners must address.

Due to the rise in property prices, many persons/families find themselves in a situation where the real estate proportion of their total wealth now makes up more than 50 per cent of their total assets and, in certain circumstances, can be more. Additionally, many expatriates who bought their property many years ago invested part of their savings in their retirement. This can often result in families being property rich and cash poor.

From an investment point of view the key to protecting your wealth from large fluctuations is through diversification. By diversifying your investments into many asset classes you become less vulnerable to price changes in one asset class. The best way for property owners to tackle this situation is to activate the passive wealth in bricks and mortar by taking a mortgage on the property and investing the proceeds in other asset classes. This is called equity release.

With interest rates at low levels it is even possible to invest the proceeds from the equity release into low risk investments that may generate a higher return than the interest paid on the mortgage, thereby creating additional income.

In most countries, prudent retirement planning used to aim at minimising any outstanding debts upon retirement, however there are now compelling reasons why a mortgage in the form of an equity release scheme or even a full home reversion scheme should be considered.


These schemes operate by placing a loan against the property, which releases capital into a tax efficient investment structure. Interest on the loan can be deferred until final maturity or death and, with interest rates at current levels, even a conservative investment portfolio can produce returns greater than the cost of the loan interest. These schemes allow the property owner to release both income and capital in a controlled manner.

Let’s assume that a property owner decides to take out a loan of 100 per cent of the market value of the property valued at 800,000 euros. When the loan is granted, the property owner has the option to use 25 per cent of the released capital for any purpose. The remaining capital is invested for the borrower’s benefit.

In this example a cash release of approximately 200,000 euros would be available.

This type of scheme entails the physical sale of your property for the right to a capital sum and/or income for the remainder of your life. You are also allowed to remain living in the property until eventual death. The benefits generally attract older clients.

Whenever someone is considering an equity release or a home reversion scheme, it is absolutely essential that comprehensive and professional advice is sought from the outset.

In the case of my own company, Blacktower Financial Management, we are the first company of wealth management advisers to introduce these schemes into Portugal after negotiating with a panel of international banks and property fund managers since 2004.We now offer over seven different schemes, each one offering different terms and conditions that, in part, can be designed to suit individual borrower’s needs. Part of the requirements were to ensure that our staff were qualified up to UK standard in both equity release and home reversion.

If you where in the UK seeking advice on this subject the regulator makes it an offence to advise without the necessary specialist qualifications being in place. My belief is that anyone considering equity release or home reversion should seek the same level of assurances from any adviser.

John Westwood can be contacted by telephone on 289 417 267 or via email at [email protected]