What is a home reversion plan?
When people talk about equity release, they usually mean a lifetime mortgage. But there’s a second type of equity release plan that works very differently, and it’s worth understanding before you make an informed decision: a home reversion plan.
With a home reversion plan, you sell all or part of your own home to a reversion company in exchange for a tax free lump sum, regular income, or a combination of both. In return, you’re given a lifetime lease guaranteeing your right to remain living in the property rent free (or for a nominal rent) for the rest of your life, or until you move into permanent care.
Unlike a lifetime mortgage, a home reversion plan isn’t a loan secured against your property, so there’s no interest rolled up over time. Instead, the reversion company owns exactly what proportion of the property you sold to them, and that share is realised from the sale proceeds once the home is eventually sold.
How does a home reversion plan work?
You agree to sell a set percentage of your home’s value to the plan provider, rather than the property outright. That percentage is fixed at the outset and is what the reversion company will be entitled to when the home is sold in future, regardless of how house prices move in the meantime.
Because you’re giving up ownership of a share of your home immediately, rather than borrowing against it, home reversion providers typically pay a discounted rate rather than the full market value for the share you sell. This reflects the fact that you keep a guaranteed, rent free tenancy, often for many years, before the provider sees any return on the equity tied up in that share.
Lifetime Mortgage
If you’d like to see how a lifetime mortgage compares in terms of how much you could release, our equity release calculator is a useful starting point, and our guide to what is a lifetime mortgage explains the loan based alternative in full.
Home reversion plan vs lifetime mortgage: key differences
Both are types of equity release, and both let you unlock tax free cash from your home, but a reversion plan and a lifetime mortgage work in very different ways:
With a lifetime mortgage, you retain full ownership of your home throughout. With a home reversion scheme, you sell a share of it and become a part owner alongside the reversion company.
A lifetime mortgage is a loan, so it accrues rolled up (compound) interest on the amount you borrow. A home reversion plan has no interest at all, and no monthly repayments to make, since it isn’t a loan.
Reversion plans usually pay below full value for the share sold, because of the rent free tenancy you keep. Lifetime mortgages let you release a percentage of your home’s value as a loan amount, without selling any part of it.
With a reversion plan, the provider’s share (and any future rise in value on that share) belongs to them once the home is sold. With a lifetime mortgage, any increase in property value benefits you and your estate, minus the loan and interest owed.
A guaranteed right to remain in your home for life, or until you move into long term care, set out in your tenancy agreement.
No interest rates or interest of any kind to track, since you’re selling a share rather than borrowing.
You can often ring-fence a proportion of your home for inheritance tax planning purposes, by only selling part of your property.
Applicants in poor health may qualify for enhanced terms, since a shorter expected tenancy can mean a better rate from the provider.
Funds are released as tax free cash, and can be taken as a lump sum, a regular income, or both.
You’ll typically receive considerably less than the full market value of the share you sell, particularly if you’re younger when you take out the plan.
Once sold, that share of your home no longer belongs to you or your estate, even if house prices rise sharply afterwards.
Home reversion plans are less common than lifetime mortgages, so there’s a smaller pool of providers and equity release options to choose between.
As with any way of releasing equity, a home reversion plan can affect your entitlement to means tested benefits, so it’s worth checking this with an adviser before proceeding.
Reversing the decision later is difficult and often costly, so it’s important to be confident before you go ahead.
Advantages and disadvantages of a home reversion plan
Frequently Asked Questions
Eligibility criteria vary by provider, but home reversion plans are generally aimed at older homeowners than lifetime mortgages, typically from age 65 upwards (some providers accept applicants from 55 or 60). As with other equity release plans, your property normally needs to be your main UK residence and meet the provider’s minimum value requirements.
A financial adviser or equity release adviser can confirm whether you meet the criteria for a home reversion plan specifically, and give you tailored advice on whether it, or a lifetime mortgage, is the better fit for your personal circumstances.
As with any form of equity release, you’ll need an independent solicitor acting on your behalf, separate from the provider’s own legal team, to make sure the tenancy agreement and sale terms genuinely protect your interests. Legal fees, along with any adviser fees, are set out clearly before you commit, so you know the full cost of releasing money this way in advance.
Reputable providers are typically members of the Equity Release Council, the industry body that sets minimum standards for the market, including your right to remain in the property and protections around how plans are administered.
When the property is eventually sold, whether because you’ve passed away or moved into permanent care, the proceeds are split according to the ownership shares agreed at the outset. If you sold 40% of your home, the reversion company receives 40% of the sale proceeds, and your estate keeps the remaining 60%, regardless of how the property’s value has changed since the plan began.
Whether a home reversion plan makes sense depends on your age, how much of your home you want to keep for your estate, and whether you’d rather avoid interest altogether even at the cost of a lower initial cash lump sum. For many people, a lifetime mortgage remains the more flexible option, particularly if a drawdown facility suits how you want to release money over time. For others, especially those focused on later life planning and certainty, with no interest to track, a reversion plan can be the better fit.
There’s no one-size-fits-all answer, which is why it’s important to take advice from a qualified, whole-of-market adviser before choosing between a reversion plan and a lifetime mortgage.
Start your equity release journey today
Our equity release specialists work with you and your family to explain both lifetime mortgages and home reversion plans, offering whole-of-market advice so you get the right recommendation for your circumstances. Request a callback today.
IMPORTANT TO KNOW
At Bower Home Finance, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances.
Bower Home Finance provides independent, impartial whole of market equity release advice with an award-winning customer service experience. Initial advice is provided at no cost to you and without obligation. Only if you choose to proceed and your plan completes, would a typical advice and administration fee of £1,895 be payable.
Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding. If you are considering equity release, we strongly recommend that you read our Equity Release page carefully and talk to one of our specialists before deciding if you wish to proceed.
To find out more about any of the products and the service we provide, please call us on freephone 0800 411 8668, request a call back, email us, or use our live chat on our website.
Please be aware that equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. All features and risks are thoroughly explained in your free personalised illustration.