The life mortgage loan between reasons for the flop and remedies

A combination of factors, both cultural and technical, has prevented the mortgage life loan from becoming a reference point for access to credit for homeowners now outside traditional banking circuits. The law regulating the instrument 'is a law that has not caught on for a variety of reasons,' explains Flavia Fiocchi, national councillor of the Notariat. 'Critical issues concern both the owner's side and the bank's side, but also the way the norm has been structured.

The life mortgage loan is aimed at over 60 homeowners. The bank grants a sum secured by a mortgage on the house, but the beneficiary pays no instalments. Capital and interest accumulate and are only paid back when the borrower dies. At that point the heirs come into play, who can either repay the debt or sell the property to pay it off. If no decision is made within twelve months, the bank can proceed with the sale. 'The loan accumulates interest that is capitalised annually,' Fiocchi observes. 'If the lifespan extends over time, the debt can become very significant. In some cases it exceeds the value of the property. When this happens, the heirs give up and the bank proceeds with the sale, but without being able to recoup any difference'.

The model also presents risks for lending institutions. In particular, when they are responsible for the sale of the house. As in real estate executions, in fact, the price may fall compared to the market value. The result is that the institution risks not recovering the entire capital disbursed. There is also a cultural barrier. "This is a contractual situation of Anglo-Saxon origin," comments Fiocchi. "In those systems it is normal to consider the house as an asset to be used also to obtain liquidity. In Italia, on the other hand, the idea of an asset to be handed down remains strong'.

Despite the critical issues, the instrument retains its usefulness, allowing people to obtain liquidity without selling their home and without having to face monthly instalments. "It serves to allow those who have a home but little liquidity to monetise their real estate assets,' Fiocchi concludes. 'It can be a way of facing with greater serenity thethird age. The point is not to shelve the life mortgage loan but to review some of its characteristics. Among the hypotheses: limiting the amount that can be financed to a reduced share of the value of the property, for example between 15% and 30%, or intervening in the capitalisation mechanism of theinterest'.