UC3M presents a guide to monetising housing and improving pensions

How can you improve your pension through home ownership and without changing homes? That is one of the issues resolved by a guide on housing and pensions presented at the Universidad Carlos III de Madrid (UC3M) and prepared by researchers from UC3M and the Universitat Jaume I (UJI, in its Spanish acronym) for the MAPFRE Foundation.

The current socio-economic context is impacting the financial situation of the over-55s. As shown by the "IV Senior Consumer Barometer" from the MAPFRE Foundation’s Ageingnomics Research Centre, 50% of the over-55s are uneasy about their finances and 29% expect their financial situation to worsen in the future. This perception could be one of the reasons why the number of homeowners over 55 who want to make more economic profit from their home has increased by 6 percentage points in one year, from 29% to the current 34.6%.

In view of this situation, the MAPFRE Foundation’s Ageingnomics Research Centre has published and presented "Housing and Pensions. A guide to monetising housing and improving your pension", at UC3M’s Madrid-Puerta de Toledo Campus, carried out by experts Juan Éngel Lafuente Luengo, professor of Financial Economics and Accounting at the UJI, and Pedro Serrano Jiménez, Associate Professor of Financial Economics and Accounting at UC3M. This publication aims to offer the elderly a simple and comprehensible tool so they can learn about the different options that exist to make their property profitable and provide liquidity without changing homes, as well as to discover the existence of insurance and financial products that improve their purchasing power.

During the presentation of the guide held at UC3M, its authors, together with the director of the Ageingnomic Research Centre, Juan Fernández Palacios, presented some of the options included in the document and addressed the importance of seniors being aware of such alternatives to complement public retirement benefits.

The guide points out that the latest available statistics indicate that a significant proportion of adults are facing their retirement with shortages. Currently, the average retirement pension in Spain stands at 1,438.20 euros, an amount that has increased compared to last year and which guarantees a basic level of sustenance, but is often insufficient to maintain the retired population’s quality of life, especially considering the current economic situation and the fact that they will progressively need more resources to cover their dependency needs. Thus, housing monetisation options are presented as an effective solution to supplement the average pension.

Housing and pensions: alternatives for monetising housing

Selling or renting a property is the most common decision to obtain extra income in retirement by profiting from real estate assets. However, not all seniors have a second home to move to and, furthermore, 45% of the over-55s have no intention of relocating in the future, a trend that is growing with increasing age. For this reason, having additional resources that do not involve having to move, and that help to supplement the public pension, is essential for this group. Thus, the guide, in addition to discussing traditional alternatives such as retaining or transferring ownership, focuses on new monetisation alternatives.

"Taking into account that more than 8 out of 10 seniors own their own home, it is essential that they are aware that there are different insurance and financial products with which they can improve their purchasing power and, therefore, their standard of living during this stage of retirement. Through the monetisation of housing, real estate assets can be converted into liquid money and, as with pension plans or insurance, it is another instrument that seniors can use to supplement public retirement benefits," says Juan Fernández Palacios.

To facilitate understanding of the different options available, the Ageingnomics Research Centre paper divides the new alternatives for monetising housing into two groups: those that involve a lifetime transfer of home ownership, and those that retain ownership.

In the first, the owner can obtain liquidity by selling the property during their lifetime, but retaining the right to reside in it for life. This is achieved through the transfer of ownership of the property in exchange for cash, while maintaining the right to reside in the property until death. Within this group are the sale of the bare ownership, reverse housing and real estate annuities.

In the second type of alternative, there is no transfer of ownership, but liquidity is obtained through a financial institution. Reverse mortgages and advance rent payments can be used to do this. This option is very useful for homeowners who want to protect the transfer of their property to their heirs. In this way, the property is retained by the owner over the age of 55 until their death, after which it will pass to their heirs. "These new ways of monetising housing expand the range of possibilities both for homeowners, in order to finance their retirement using their real estate assets, and for investors, increasing the set of investment assets available on the market," says Pedro Serrano Jiménez, co-author of the study and a lecturer in UC3M’s Business Economics Department.