Equity Release News

What is a Home Reversion Scheme?

Home Reversion Scheme

A home reversion scheme is where you release equity that is held in your property by selling part or all of your property to the reversion providers. In return for selling part of your property you will receive a lump sum of money that is tax free. You are able to spend this money on anything you want. Even though you have sold part of your property you are able to keep living there with a lifetime tenancy.

The home reversion provider gets their money back once the house is sold. This is usually done if you have to move into long term care or if you have passed away. Once the house is sold and the provider has had their cut of the house (depends on how much you sold), the rest will go to your beneficiaries.

The main advantage of a home reversion scheme is that the money released to you is tax free. Additionally there are no repayments to make, you will know how much of the house will be left to your beneficiaries, the older you are the more money you can release and you are able to benefit from property value increases with the remaining part of the home that you still possess.

• You must be at least 65 to enter a home reversion plan
• You must have at least £75,000 value in your home
• Anyone named in the home reversion setup can remain in the house under the lifetime tenancy.

The main disadvantages of home reversion schemes are that you won’t be able to benefit from house price increases on the part of the property that you have sold, you can be charged if you want to end the plan early and the part of the house that you are selling to the provider will not give you the current market value.

• Reversion schemes work on a percentage basis of home value and your age
• Your beneficiaries will not receive current market value for the remaining portion of your home
• You do not get current market value for your home, but a percentage based on the amount sold.

A rental home reversion arrangement allows you to sell your home for a lump sum amount and then rent it back at an agreed discounted amount. You are able to stay and live in your home for the entirety of your life. This differs to the standard home reversion plan in that the sum of money you receive is larger and you will live rent free. A home reversion plan is great for those who want to release equity from their property and also help to secure an inheritance for their loved ones.

Home reversion schemes are not your only option when it comes to releasing equity from your home. You may read in other places that reversion plans are less flexible and outdated. All too often there is a misunderstanding about the exact terms of these plans, which has led to confusion.

Any financial plan that releases equity from your home will have its pros and cons. The highlights here need to be compared to other equity release schemes like lifetime mortgages to help you ascertain the true advantages.

Lifetime mortgages are a loan on your property in which you take a lump sum or monthly instalment. This is the same as home reversion schemes; however, it is a loan that requires repayment. The repayment is where things differ. With a mortgage plan you are leaving a debt behind that might have to be paid by selling the property.

While you can remain in the property until you move to a care facility or die, the property might need to be sold to pay off the loan you left behind. There is no guarantee the sale will bring an inheritance to your beneficiaries given that property values can fluctuate. Only if the home value is higher than the lifetime mortgage taken out on the home will there be money left for your beneficiaries.

Already you should have picked out some of the advantages of home reversion schemes and now they make more sense because you have learned about lifetime mortgages. While it is true a home value can lower, as long as you do not sell your entire home when you are alive, reversion plans should leave a small inheritance once the house is sold. It provides fewer worries for your family and you since you leave no debt and they gain a little from the sale of the remaining portion.