What Is A Home Reversion Plan?

When you’re considering Equity Release, you’ll come across two main types home reversion plan and lifetime mortgages. But what is a home reversion plan

A home reversion plan is a type of Equity Release that allows users to access some of the money they have tied up in their home, later known as house equity. You have to sell either the entire house or a portion of your home to a supplier (for example, 50% of its worth).

This will typically be at a lower price than the market worth of your home. You will get a tax-free lump sum, recurring instalments, or both in exchange.

Even though you no longer own your house outright, you and your companion have the right to live there rent-free for the remainder of your lives or until you die or enter care.

How Does A Home Reversion Plan Work?

The ‘lifetime lease’ plan is offered to people above 60 years old who own their own house. These schemes can only be used against your main home. Home reversion plans inspired lifetime mortgages. As lifetime mortgages have become more flexible, there appeal has waned dramatically.

You sell all or part of your house in exchange for a cash lump sum, recurring income, or both in a home reversion plan. The income choice provides you with consistent payouts for the rest of your life. However, if you die soon after purchasing the plan, your beneficiaries may be left with a massive sum of money for which you received little benefit.

There are no monthly payments because the money you receive bears no interest.

When your home is finally sold, the home reversion firm receives a portion of the proceeds. As a result, when you sell the whole property to the firm, the company will receive all revenues. If you sell 50% of your home, it will receive half of the proceeds, and you can give the other half as an inheritance to your beneficiaries.

The higher your property’s value rises, the more income the home reversion company makes, and the more you pay to release the equity.

The Different Types Of Home Reversion

There are a few different types of Equity Release plans. A home reversion plan is one in which you sell a portion or the entirety of your home to a service provider. Your age, the valuation of your residence, and, in some cases, your health all play a role in determining the type of home reversion you receive. Generally speaking, the older you are, the more money you will be able to discharge from your estate.

How Do I Get A Home Reversion?

There aren’t many home reversion plan providers to select from, but the Financial Conduct Authority (FCA) requires you to see a specialist adviser possessing an Equity Release qualification to ensure you make the best decision.

Legal advice, financial advice (except if you utilise a free advice service), property valuation, and arrangement costs will all cost money. These prices differ depending on the service provider.

If Equity Release is correct for you, your adviser will explain whether a lifetime mortgage or home reversion is the best option. They can then make precise product recommendations and describe the process in specific and great detail.

The provider makes you an offer on a section of your home based on your health and age characteristics. You’ll receive a tax-free lump amount or regular payments, as well as a long-term lease in exchange.

A home reversion plan allows you to stay in your house for as long as you live or until you move out, such as going into long-term care.

Because you will keep your home, the home reversion plan provider will typically only pay you 30% to 60% of the total market worth of your home.

Your age determines the amount you receive and the length of time the home reversion plan provider anticipates you to live or stay at the property.

There are a few things to think about. Unless you decide to take more cash releases, your portion of the home will always remain the same regardless of its market worth.

You get the funds tax-free and can put it towards whatever you like.

You might use the funds to pay for long-term care, although only if you want to remain in your current residence. You may, for example, reinvest the funds to create additional income in retirement. You might also use it to pay for significant expenses like private medical treatment, house improvements, or simply to live a more comfortable retirement.

However, because home reversion plans are deemed high-risk products, you should get legal and financial counsel before proceeding, just as you would with lifetime mortgages.

To safeguard the resale value of your home, lenders will also require you to maintain it to a good condition.

After that, you’ll need to ratify a tenancy contract, and some lenders will want you to pay a small monthly rent to the new landlord (for example, £1 or £2).

Pros and Cons Of Home Reversion

There are a number of pros and cons associated with home reversion plans 

Pros 

• A home reversion plan allows you to withdraw some of the equity that’s stored in your home without having to move.
• You can withdraw tax-free cash and spend it how you like.
• There’s no interest to pay on the loan and no monthly repayments.
• You know the proportion of your home you can leave to your beneficiaries.
• You benefit from any increase in property prices if you retain a portion of the property.
• The older you are, the more money you’ll be able to release.
• You can generally release a larger proportion of your home’s value than you can via a lifetime mortgage.
• A home reversion plan is portable, meaning you may be able to move house in the future.
• Home reversion plans are regulated by the FCA, an official body with powers to protect your financial interests. You can complain to the Financial Ombudsman Service if you’re unhappy with the service you receive from an Equity Release provider.

Cons

• Having a large amount of cash in your bank account could impact your eligibility for pension credit, savings credit, council tax discount or other means-tested state benefits.
• A home reversion plan is not usually available to anyone aged under 60. By contrast, you can take out a lifetime mortgage from age 55.
• You won’t be paid the full market rate for the portion of your home you sell.
• Although most home reversion plans are portable, meaning you can transfer them to another home, in reality, you may face difficulties if the house you wish to move to is worth less than your current residence.
• If you sell all of your home, there’ll be nothing left for your beneficiaries to inherit.

Is A Home Reversion Right For Me?

Home reversion plans are riskier than conventional mortgages. They could have a significant impact on your tax situation, benefits, inheritance tax, and long-term financial planning.

Before you take out the home reversion plan or any other type of Equity Release arrangement, you should always get financial advice. This will assist you in determining whether it is appropriate for you. They can be a good method to get money out of your house, but ensure you’re informed of the risks before signing up.

A home reversion may be worth considering if you need a lump sum or income now and want to reside in your home. Also, you don’t need anyone else (like children or even other family members) to profit from the comprehensive value of the home. However, you will no longer be the owner of your home (or just own part of it).

You’ll need to keep the house in good condition while you live there, so put money aside for that. You must also adhere to the lease’s terms, and regardless of how much of the home has been sold, you may still be responsible for other costs like ground rent (or the chief rent).

On some freehold properties, this is an annual fee that must be paid. If this is a concern, a home reversion may not be the best option for you. You must hire your solicitor to review the lease and provide you with advice. Older people are usually the best candidates for home reversions.

How Much Can I Borrow With A Home Reversion?

Based on your age and health, you can typically take between 30% to 60% of the current value of your home.

Because you don’t pay interest on the money, you don’t get the market value for the piece of your house you’re selling. Instead, you pay a charge for accessing the cash. The home reversion firm has no idea when it will receive its money or what will happen to house prices.

Because the percentage you receive increases as you become older, a home reversion plan is best suited to persons over 70.

You will still be responsible for the upkeep and other expenditures related to the property, like council tax and utility bills, even if you will not be required to pay rent.

How can Joslin Rhodes help?

We know Equity Release can be a big decision for you to make, which is why we’ve teamed up with the UK’s number one Equity Release adviser and member of the Equity Release Council, Age Partnership.

The Age Partnership adviser will make sure you understand all the options available to you.

Equity Release may involve a home reversion or a lifetime mortgage, which is secured against your property. To understand the features and risks, ask for a personalised illustration.

Equity Release requires paying off any outstanding mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.