Reverse mortgages under scrutiny
The Banco de España is examining why reverse mortgages remain marginal in Spain, despite high property ownership among over-65s. According to the National Statistics Institute (INE), nearly 90% of people aged 65 and over own their homes outright, creating significant potential for housing wealth to support retirement income. However, take-up remains low. The historical peak was just 780 contracts in 2009, and annual volumes have stayed in the low hundreds since, even as life expectancy rises. A person reaching 65 in 2024 can expect to live another 21.87 years on average, according to INE data.
How reverse mortgages work
Unlike traditional mortgages, reverse mortgages allow homeowners aged 65 or over to receive funds while retaining ownership and residency. The loan is secured against the property, with repayment due upon the borrower’s death or departure from the home. Under Law 41/2007, the property must be valued and insured, and applicants must meet age or dependency criteria. Borrowers can receive funds as a lump sum, regular payments, or a combination. The law also mandates independent advice due to the product’s complexity.
The client has to understand the economic consequences of what they are signing.
Compound interest and transparency concerns
Because repayments are typically deferred, interest accumulates and compounds over time. For example, a €100,000 loan at 6% annual interest would grow to around €321,000 after 20 years without repayment. In July 2026, the Supreme Court (STS 1317/2026) ruled on a 2010 reverse mortgage contract from Kutxabank, annulling the interest clause for lack of transparency. The court found that while the contract described a simple interest formula, it failed to clearly explain that monthly accrued interest would be capitalised and generate further interest. The ruling did not ban compound interest or reverse mortgages, but confirmed that unclear clauses may be declared abusive under consumer protection rules.
Market structure and limited bank involvement
Major banks have largely stayed out of the market, leaving space for specialist operators and joint ventures between banks and insurers. This limited presence may reflect the product’s financial, legal, and reputational risks. The Banco de España has held discussions with financial institutions and other stakeholders to understand the barriers to growth. While no official policy changes have been announced, the review highlights concerns about consumer understanding and market development.
Inheritance and family decisions
When the borrower dies, the debt becomes payable by the estate. Heirs can repay the loan and keep the property, refinance it, or sell the home to settle the debt. Creditors can only claim up to the value of the inherited assets. This creates intergenerational considerations. Using home equity in retirement may reduce inheritances, but it can also support longer lifespans. Decisions involve balancing immediate financial needs against long-term family wealth.
The key issue is not whether to spend or save housing wealth, but ensuring those who use reverse mortgages do so with full understanding of the long-term financial and familial consequences.
Reported by toledoabogados.com, ine.es, clientebancario.bde.es, Federico Castaño, VIA Empresa.
