What Are Home Reversion Plans?
A home reversion plan involves selling a part, or all of your property to a home reversion company in exchange for a tax-free cash lump sum or regular payments.
By selling off a portion of your property, you then become a co-owner in your own home. If you sell 100% of your property then you lose ownership completely. No monthly payments are required from the lender, and there is no interest charged on a home reversion plan.
Nevertheless, you are provided with occupancy rights under the terms of the home reversion arrangement. This includes a lifetime tenancy agreement, which means that you have the right to remain in the property for the rest of your life.
The plan is eventually repaid upon death, or the last surviving partner goes into long-term care. At that point the home reversion company will sell the property, with the sale proceeds being distributed in accordance with the previously agreed percentage splits.
Reasons for Home Reversion Plans UK
One of the main reasons people opt for home reversion schemes is the fact they will guarantee of a fixed inheritance to their beneficiaries on death. By deciding at the outset how much of the property value you wish to retain, you can set a fixed percentage of ownership which carries through until redemption.
In practice, the way home reversions work is that the lender will take account of your age, sex and property value. The main criterion will be life expectancy, as the amount the reversion company will lend will be discounted, as you will be living rent free in the house for the remainder of your days. Effectively, the younger you are the less you will receive in exchange for the percentage of your property sold.
As an example, a male age 70 selling 100% of his property value would receive if you decided to sell 41.5 % of his property value.
Put into monetary terms, if the same person owned a property valued at £200,000 & sold 100% to a reversion company, he would receive a maximum tax-free lump sum of £83,098 (New Life – Optimum). A home reversion calculator will assist with this calculation.
Home Reversion Qualifying Criteria
To qualify for a home reversion plan the youngest applicant must have an age attained of 65, own their property with it being their main residence. Evidently, a home reversion plan starts 10 years later than its lifetime mortgage counterpart.
However, some similarities do exist between the two schemes, in that the older the applicants are, the better the rates that will be offered by the equity release provider. In the case of a home reversion scheme, for the same percentage of the property sold, the older the applicant(s), the greater the lump sum they will receive in return.
Property criteria tends to be stricter with a home reversion loan, as the reversion provider is taking ownership of all or part of the residence. Thus, they will tend to be more selective over which houses they accept into their property portfolio. For instance, home reversion companies are unlikely to accept a leasehold flat, whereas lifetime mortgage providers will.
To understand whether you qualify for a home reversion mortgage, then use our free smartER research tool.
Requirements of the Reversion Provider
The reversion provider will expect the applicant to keep up with the maintenance of the property to an agreed standard. This is the case even if 100% has been sold. If work is required to be undertaken, then the home reversion company has the right to charge the tenant for the works carried out.
Additionally, the tenant may need to pay any leaseholder costs such as ground rent or chief rent, no matter what proportions the property has been sold. The home reversion provider usually charges no rent, but will make periodic visits to the property to ensure their investment is not depreciating in value due to neglect.
Home Reversion Pros and Cons
There are many factors that can influence the main decision over the home reversion versus lifetime mortgage scenario. These factors can depend on age, sex, health situation and finally economic factors such as future house price changes and the movement in future interest rates.
For this reason, you should always obtain independent equity release advice. Advice from an experienced & qualified adviser, who can assess your needs & recommend the correct type of equity release scheme is paramount, given the enormity of the decision which determines the potential inheritance you may leave behind.
Home Reversion Pros
>> Property Price Increases – You benefit from any property price increases on the value of the part of the property that you own.
>> No Affect on Budget – there are NO monthly payments to make & NO interest is charged by the reversion provider
>> Application Fees – are usually lower on a home reversion scheme than a lifetime mortgage
>> Best Suited – home reversions are more favourable than a lifetime mortgage when the housing market is stagnant
>> Further Advances – are still possible whereby the whole percentage of the property value has not already been sold
>> Guaranteed Inheritance – you can guarantee that a percentage of the property will be passed to your beneficiaries upon sale of the property
Home Reversion Cons
>> Sold at a Discount – you won’t receive full market value for the percentage of the property as it sold at a discount
>> Minimum Age – the starting age for a home reversion is 65, which means waiting 10 years longer than a lifetime mortgage
>> Early Repayment – if you died early into the term of the plan, you could have sold your share of the property cheaply
>> House Prices Increasing – you lose any share on the part of the property you sold, should property values increase over time
>> Property Criteria – home reversion providers are more selective over the types of properties they will accept
>> Loss of Ownership – some people feel uncomfortable with only part owning a property they have lived in for many years
Further information on home reversion plans
If a home reversion plan sounds of interest to you then we have home reversion plan advisers who can provide independent advice either over the telephome or by appointment in the comfort of your own home.
Any initial discussion or meeting will be free of charge. Your equity release adviser will sit down & discuss your current situation & what options you have in order to meet your equity release objectives. Having obtained this information, they can then conduct research from the whole of the equity release market, followed up with a report outlining their equity release recommendations.
If you wish to take advantage of this service and book an appointment please call Freephone 0800 011 9841 or click here to complete your appointment request form.
You may also find the following links of interest in your search for the best equity release scheme: –
These are Home Reversion Plans. To understand the features and risks, ask for a personalised illustration.
Home Reversion Schemes are now regulated by the Financial Conduct Authority.