What are Home Reversion Plans?
You sell your home or a share of it to a reversion company, in
return for a lump sum or a monthly income (or a combination of
both).
Home Reversion Schemes
Technically you become a tenant, albeit with the right to continue living in your home rent-free (or sometimes for a nominal rent) for the rest of your life. Home Reversion Plans are not equity release mortgages and there is no interest to pay, unlike lifetime mortgages, where although there is no interest to pay the interest rolls up..
When the property is sold – usually when you die – the reversion company gets its payout. If, for example, you sold 50% of your property to the reversion company, it gets 50% of the proceeds – including any growth. If you sold 25% of your property, it gets 25% of the proceeds, and so on.
In addition, the reversion company will also only pay you a percentage of the current market value for the share of your property it buys. This is because you get to carry on living in the property until you die, and the company may have to wait years for its return.
If you sell all of your property to take up a home reversion scheme, for example, you will typically get between 30% and 50% of its current value. It will rarely be more than 60%. The actual figure will depend on your age (and your partner’s). Older people will get more, and men get more than women – because of differences in how long they are expected to live.
If you are borrowing with your spouse or your partner or somebody else, the property would be sold following the last surviving of you dying or moving into long term care. Any money left over would belong to your estate.
It is always recommended that you seek Independent Legal Advice before entering into any equity release arrangement.
Advantages
- No ongoing repayments to make, the reversion company makes all of its money when the property is sold.
- You know at outset what share of your home (if not its value) you will be leaving to your family.
- You continue to share in any rise in the value of your property (unless you have sold its entire value).
- You can take extra cash advances, depending on the amount you originally took.
Disadvantages
- The home reversion company will buy at a discount to the current market value.
- The big discount at which the reversion company will want to buy makes these schemes less suitable for people in their 60s. Typically, you do not receive the full market value of the share of the property you sell because the home reversion plan company will give you the absolute right to live in it rent free for the rest of your life, therefore the younger you are the longer it will take the home reversion plan company to receive their money back.
- If you die soon after taking out a plan, you could effectively have sold off your house (or a share of it) on the cheap. Some schemes give families a rebate if you die within the first few years of signing up.
- Reversion companies can be choosy about the properties they take.
Compare Home Reversion Plans
You can use this home reversion calculator to see if you are eligible for equity release and also how much you might be able to release.
The figures from the calculator are indicative only and for a personalised equity release illustration and free guide click here