Mortgage customers aged 65 or 70 and over often experience financial difficulties. In the worst case scenario, they may be forced to sell their home. This can be avoided thanks to a property pension or a special pension mortgage.
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At the very best residential addresses, where villas with manicured gardens give the illusion of wealth, a surprising reality lies hidden: even private individuals who are considered millionaires according to the tax bill are facing financial challenges. Higher mortgage rates than two or three years ago and rising living costs are putting pressure on older homeowners.
Of course, there are many retirees who enjoy their retirement to the fullest. However, it also happens that private individuals have practically all their funds tied up in property and their cash reserves run out much faster than expected.
Adrian Wenger, financing expert at VZ Vermögenszentrum, says: “There are even hardship cases where we have to say that selling the property is the only way out.” According to Wenger, the number of problem cases is increasing, and the bank is even terminating the mortgage.
It is also questionable how great the incentive is for lenders to grant exceptions and offer bridging measures. After all, pensioners are less likely to be offered additional business such as a Pillar 3a or lucrative asset management.
Liquidity problems after retirement can have many causes – poor or no financial planning, strokes of fate, care costs or simply the fact that the house and everything that goes with it is getting out of hand.
Avoid involuntary sale
What are the possible solutions? A homeowner must first check whether there are any other freely available assets. For example, most banks offer to take the remaining free funds into account when checking the affordability of the mortgage. If the value of the property has increased, a new valuation by the bank can sometimes help.
If all of this fails, a so-called reverse mortgage is an option. To put it simply, the mortgage is increased in order to raise money for living expenses and interest payments for the next few years. In the event of death, the surviving relatives could finance the remaining debts from the proceeds of the sale of the property.
Mortgage 50+ and real estate pension
One example of this is the 50+ mortgage from Sparhafen Bank. Reto Kyburz, CEO, explains: “The mortgage is open to customers aged 50 and over.” It can also be used to replace existing financing from other institutions.
With the 50+ mortgage, it is possible to increase the value of the property by up to 65 percent. The intended use must be clearly defined, such as for renovations or to cover living and care costs. The bank carefully checks each file to ensure that the property or other existing reserves offer sufficient security. A solid financial plan is essential for this.
The Thurgauer Kantonalbank (TKB) has a similar offer with its Immo-Rente. If the mortgage has already been largely amortized, it can be increased again to up to 66 percent of the property value.
Real estate pension explained
The VZ Asset Center also offers a property pension: This provides for an increase in the mortgage by up to 50 percent. The entire loan amount is taken out as a fixed-rate mortgage for 10 to 15 years. In contrast to a normal mortgage, the money is now used to provide the customer with living expenses with a lump sum payment (see table below).
Secondly, all future interest is secured in a blocked account with the mortgage. Thirdly, the money is used if necessary to pay off any existing mortgage. According to VZ, the debts remaining after ten years are usually paid off from the sale of the property.
A property annuity can help to avoid an involuntary sale. However, the interest costs associated with this are rarely communicated clearly. Banks usually adjust the conditions individually and “risk-appropriate”, as they say in banking jargon.
Such promises are good for reputation – no bank wants to risk negative headlines by cancelling loans. But the main problem remains unsolved: homeowners cannot access the capital in the form of the property when they are older.
Residential pension like in France
A model that is known in France and now also in western Switzerland under the name “vente en viager” is causing a stir. In German, it corresponds to the idea of a life annuity. In contrast to the property annuity mentioned above, the house is sold to an investor. In return, the resident receives a lifelong right of residence and a regular pension. Fredy Hasenmaile, chief economist at Raiffeisen Switzerland, says: “From a certain size, this becomes interesting for institutional investors such as pension funds.” A Western Swiss Fund has already collected 100 million francs in such residential pension cases in a short period of time.
Juerg Zulliger, «New Zurich Newspaper»
