What is a Home Reversion Plan?

If you want to release a equity in your home, you can often be caught up in the confusion trying to find what is best for you. With lifetime mortgages one option and home reversion another, it can be tricky to know what is best.

Where lifetime mortgages act as a loan secured against your home, a home reversion plan sees you sell part - or all - of your home to a home reversion provider in exchange for a tax-free lump sum or regular payments. You’ll be able to remain living in the house and depending on whether you have sold all or part of it, will have no rent to pay.

In this edition of our blog, we look a little closer at home reversion plans so you can see whether they are a suitable option for you should you wish to release some equity.

How does a home reversion plan work?

Unlike the lifetime mortgage form of equity release where a loan is secured against your home, home reversion sees the specialist provider buy part or all your home and allow you to remain living in it. This means you won’t accrue interest, but you could see the home reversion company walk away with more money than they offered you when the property sells. This is because they own a percentage of the home, and if house prices go up, so will the value of the share they purchased.

You’ll be able to remain in the home until you die or move into care, with the money paid back to the home reversion provider upon the sale of the home. This means that a large chunk of your estate, which could have been passed on to relatives, will now be paid to the home reversion company.

In some cases, you won’t be required to pay any rent to remain in the home, in others a specific rent may be agreed upon.

Who can get a home reversion plan?

Just like lifetime mortgages, there are specific eligibility rules for a home reversion plan. In most cases, home reversion is available to homeowners aged 60 or above who live in a property with a specific minimum value. In most cases, this value is £70,000. The property you want to release the equity from must also be mortgage-free.

Specifics such as property value and age may vary per provider so it may be best to speak to specialist equity release brokers before starting the process of securing a home reversion plan.

Why choose a home reversion plan?

Like with all forms of equity release, home reversion gives you access to cash tied up in the home that you wouldn’t have typically had access to. Those choosing home reversion often do so to:

• Help finance retirement
• Assist family members
• Clear other debts
• Fund repairs to the home
• Help cover future care costs

A lifetime mortgage provides the same kind of assistance but with interest added to the amount being borrowed.

Are home reversion plans expensive?

They can be. Various costs should be considered before you sign on the dotted line. Your broker can explain any fees that could apply, and a solicitor will be able to check the terms of the lease provided by a home reversion provider.

You can expect fees to include:

• Home reversion plan arrangement fees
• Valuation fees
• Legal fees
• Broker/advisor fees
• Ground rent
• Monthly rent
• Buildings insurance
• Repairs and maintenance costs

It is worth noting that not all the fees listed above may apply. As mentioned earlier, in some cases, rent is not applicable, and ground rent may not be required either. One that is certain is the legal fees. You must hire a solicitor for a home reversion plan to be completed. The provider will require evidence that legal advice has been given and followed.

Home reversion vs lifetime mortgage

Whilst both home reversion and lifetime mortgages offer the same kind of thing, there are significant differences that could make one more favourable than the other.

Home reversion plans

• Open to those aged 60 or above
• Interest-free
• You sell 25%-100% of your home meaning you are no longer the sole owner
• The older you are, the better the offer (potentially.)
• You will be offered less than the market value (often 30%-60%)

Lifetime mortgages

• Open to those aged 55 or above
• Interest is charged
• Works as a loan secured on the home
• Age and health could affect eligibility for rates
• The amount offered is closer to the true property value

There are also some similarities between the two as well. The cash offered, regardless of choosing a lifetime mortgage or home reversion plan, will be tax-free. This can be a welcome benefit to many. Furthermore, both home reversion and lifetime mortgages offer:

• Lump sum or regular payments
• Portable plans are available so you can still move house
• You can pay it back early or buy your home back (this can be expensive)
• There will be less inheritance for your loved ones
• Any benefits you receive may be affected
• You won’t risk falling into negative equity

How much will I be offered by a home reversion provider?

If you choose a home reversion plan, you need to be aware that you will not be offered market value for your home. In many cases, the share you sell may only see you offered 30%-60% of its true value. Great if you need a quick cash injection, not so great if you plan to use these funds to buy another property. This means that a house priced at the current UK average of £292,924, could be sold to a reversion provider for just over £175,000.

You may find that the older you are, the closer to the market value you are offered. This is because the provider will see the risk as more short-term and less likely to be affected by a turbulent property market.

Can I buy back my home from the home reversion provider?

If you have sold some, or all of your home to the home reversion provider, you may at one point decide you want to take full ownership again. You can do this but should be aware, it will not be cheap. You’ll be buying back the share of the home at its market value, and not the value the home reversion provider bought it for.

For example, you have a house with a market value of £300,000.

You sell 50% to the home reversion provider at 50% of its value -£75,000

You decide several years later to buy back the 50%

The house is now valued at £400,000

50% market value=£200,000.

You’ll have to find an extra £125,000 on top of the £75,000 you received from the home reversion plan to cover this cost. You’ll then also need to cover valuation fees, legal fees and more.

Can I move house and keep my home reversion plan?

In some cases, you can. There are many home reversion plans available that are portable. These allow you to sell your home and take the plan with you. You should speak to the reversion plan specialist or a mortgage broker to find out whether this option would align with your objectives.

Is home reversion a good idea?

Much comes down to personal preference. If you could benefit from the immediate cash injection, it could be worthwhile. The money released from your home could help you live the later years of life more comfortably, assist family members or help fund home improvements that help increase the value of the home.

That being said, with a percentage of ownership now in the hands of someone else, you won’t be able to pass on as much in your will to friends or relatives. You may also find that any benefits you receive now are reduced or even cancelled due to the additional income you have received. Another thing to be wary of is that by selling some or all of your home to a home reversion provider, you stand to miss out on the full gains available if property prices increase.

If you’d prefer to sell your property get in touch with the Bettermove team today. We can sell your house fast, or in a timeframe that suits you.