If you’re moving into retirement and looking at releasing equity from your home, you might have noticed a home reversion scheme is available to over 60’s. However, as one of the less popular options for equity release, it’s important to understand what a home reversion plan is and what this will mean for your personal circumstances.
A Home Reversion Plan is a type of equity release that involves you selling all, or part of your home, below market value, in exchange for a tax-free lump sum or regular payments.
You can stay in the property for life or until you want to sell it, at which point the provider will reclaim the percentage they own (25%, 75% etc) from the value of your property when you sell it.
Unlike some equity release plans, there will be no monthly repayments or rolled-up interest to repay when your house is sold. Until then, you will have the right to remain in the property rent free until you pass away or move into long term care.
What’s the difference between a home reversion plan and a lifetime mortgage?
There are a few key differences between a home reversion plan and a lifetime mortgage, with the main difference being the ownership of your home.
A home reversion plan involves selling a portion of the property, while a lifetime mortgage involves borrowing a lump sum against the property’s value.
Since a lifetime mortgage involves a loan, interest will compound and roll-up over time meaning the amount you owe will increase over time.
Fortunately, with equity release council approved products, you will never owe more than the value of your home.
In comparison, a home reversion plan will not accrue any interest as you are selling a portion of your home to the provider at a discounted rate.
What are the pros and cons of home reversion plans?
Each type of equity release comes with its own pros and cons, however it’s important to understand your suitability and the effect this may have on your personal circumstances.
The advantages
- You will not need to pay interest when your home is eventually sold
- There will be no monthly repayments
- You will be able to remain in the property ‘rent-free’ until you pass away or move into long-term care
- Benefit from increased house prices on the percentage of the property you own
- Your percentage amount won’t change (unless you choose to sell more)
The disadvantages
- With a Home Reversion plan you no longer own your own home
- You only benefit from increased house prices on the percentage you still own
- You’ll receive less than the market value of your home for the portion you sell for the plan
- Less flexible than a lifetime mortgage as it can be difficult to end the plan and buy back the percentage you sold
- Home reversion plans may affect your entitlement for means-tested benefits, your independent equity release adviser will be able to calculate which benefits will be affected
Am I eligible for a home reversion plan?
Just like other types of equity release, home reversion plans have an eligibility criteria from age to property value and if you have any existing mortgages on your home. Each of these factors will not only determine your eligibility for the scheme, but also how much the home reversion provider offers for your home.
To be eligible for a home reversion plan, you must be aged 60+ and your property must be worth £70,000 or more.
This eligibility criteria can vary between providers, however, your equity release adviser will discuss your options and suitability in further detail.
How much money could I receive?
The amount offered by a home reversion scheme provider can depend on factors such as age, health, and property value. The amount can be received either as a tax-free lump sum or through regular payments.
Offers will often range between 30% and 60% of the property’s full market value. However, if you are a younger applicant or in good health, you may be offered lower than someone with poor health.
Regulated advice you can trust
We pride ourselves in the steps we take to be trusted members of the equity release community, including meeting the high standards of the Equity Release Council (ERC), and the Financial Conduct Authority (FCA).
All products we recommend meet the high standards of the Equity Release Council (ERC), which includes a number of safeguards for customers including a ‘no negative equity guarantee’
Learn more about our status as Equity Release Council members.
Common Questions
If you’re considering a home reversion plan, you likely have some questions. Here are some common ones:
Do you pay interest on a home reversion plan?
No, you will not pay interest on a home reversion scheme as there is no loan involved. You will sell part of your home to a provider at a discounted price in return for tax-free cash, and when it is time for your home is sold in the future, the provider will then reclaim their percentage at market value.
Is it a good idea to get a home reversion plan?
There’s no one size fits all when it comes to equity release which is why if you’re considering a home reversion plan to release equity from your home, you’ll need to consider the pros and cons. An equity release adviser will discuss your options and how this will impact your life through a personalised illustration.
Who arranges a home reversion plan?
If you’re looking to release equity from your home, you will need an equity release adviser as you cannot do this yourself. The equity release adviser will discuss your options and arrange equity release on your behalf including applications and liaising with solicitors and providers to help make your process as smooth as possible.
How does a home reversion plan affect my entitlement to means-tested benefits?
A home reversion plan can impact your entitlement to means-tested benefits, as the cash lump sum or regular payments you receive may be considered as income or capital.
It’s essential to consult with an adviser to understand how a home reversion plan may affect your benefits. They can provide tailored advice based on your specific financial situation and help you navigate any potential changes to your benefits.
Can I still leave an inheritance with a home reversion plan?
Yes, with a home reversion plan, you can still leave an inheritance. The percentage of your property that you retain will be passed on to your estate. However, the amount you can leave as an inheritance may be reduced, depending on the percentage of your property that you sell to the provider.
It’s important to discuss your inheritance plans with your adviser to ensure your wishes are met.
How do I choose the best home reversion provider?
When choosing a home reversion provider, your equity release adviser will research and compare different providers, considering factors such as the percentage of your property that you need to sell, the cash lump sum or regular payments you’ll receive, and the fees associated with the plan.
Your equity release adviser will help you evaluate the offers, finding a provider that best meets your needs.
Start your equity release journey today
At Bower Home Finance, each of our specialist equity release advisers provide no obligation, whole of market advice. This means we’ll compare what each of the providers offer, helping you to find the best option in later life.
When you discuss equity release with one of our advisers, we’ll help you understand the benefits and risks of a home reversion plan and help you consider alternative options
Get started today with our online equity release calculator, or request a callback to speak to an equity release adviser to receive a personalised illustration.
At Bower, 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.
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.
Bower Home Finance provides independent, impartial whole of market 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 £1,695 be payable.
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 join our live chat you’ll find 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.
