Home Reversion Plan

If you have paid off all of your mortgage and are looking for ways to make your retirement more enjoyable, you may want to consider releasing some of these tied-up funds in an equity release scheme.

Home reversion plans are one way of releasing your home equity and they are sometimes known as  ‘home for life plans.’ Read this guide to find out more about how these schemes work.

What is a Home Reversion Plan?

If you own your home outright, those who apply for a Home Reversion Schemes are agreeing to sell all or part of their home to a lender, who, in exchange, can offer the homeowner a cash lump sum or a regular monthly income. Those who take up the scheme can still live in their home, rent-free, and do whatever they wish with the mortgage funds released. Transfer of the property ownership only occurs upon the death of both homeowners, or their entry into long-term care.

If you would like to find out about other methods for releasing cash from your mortgage, check out our Guide to Releasing Equity.

Am I Eligible for a Home Reversion Plan?

  • The minimum age requirement for most Home Reversion schemes is 55 years old. The older the applicant, the more money you can release under this type of scheme, in most cases.
  • You should be an existing homeowner who has paid off all, or most, of the mortgage on their property.
  • The amount of money that can be released is dependent on your age, health, and the value of the property.

How is a Home Reversion Plan Repaid?

As you are selling a percentage of your house, upon your death or entry into long-time care, it can be difficult to pinpoint the exact cost of the Home Reversion Plan, when you take it out. In many cases, to minimise the risk to lenders, the property will likely be sold for less than its true market value.

If you are an older customer, say over 70 years old, the share in the home the provider will require may be less than what they would seek from younger applicants.

Let’s Look at a Home Reversion Plan Example;

Max and Audrey are 65 years old and have a fully paid up mortgage on their £240,000 home. They are looking at Home Reversion Plans, to release some of these funds for a Caribbean cruise. They have found that they can release 20% of their home’s value (£48,000) in exchange for selling 70% of their home’s value to a Home Reversion Plan provider (worth £168,000 payable on both Max and Audrey’s death).

What are the Benefits of a Home Reversion Plan?

  • You Stay Put – By taking out this kind of deal, you can stay put as a homeowner until both you and your partner die or go into long-term care. For those who love their home and want to stay, the funds can be used to modify it, to make it more comfortable for you to live in as you get older.
  • Extra Income to Enjoy – Having worked for a significant chunk of your lives thus far, the funds released from a home reversion scheme can make your retirement more enjoyable. For instance, you may want to use the money for a once-in-a-lifetime holiday, or to ensure that you never have to worry about bills in the future.
  • Good Advice Available – As equity release schemes incur financial risk, the Financial Conduct Authority regulate home reversion schemes. This entitles would-be borrowers to expert advice, legal advice and the costs and risks fully explained to you, before you sign over any shares of your property.

What are the Pitfalls of Home Reversion Plans?

  • Under Market Value – Your property will likely be sold to the home reversion providers for less than its market value. This means that your family will stand to inherit a lot less after you and your partner are gone.
  • You may Not Benefit from all Funds – If you die soon after taking out a home reversion plan, your family will not see the leftover funds go over to them as an inheritance. The money and the share of your home go to the Home Reversion Plan provider. This is why it is vital that you know all of the terms and conditions of the agreement before you make your application. In some circumstances, you can minimise the impact. However, this will need to be worked out with the provider.
  • Costs – The cost of this kind of deal can be quite high. By signing up you may have to hand over at least 70% of your home’s value to see just 20% of your home’s value as a pay-out.
What are the Alternatives to a Home Reversion Plan?
  • Work Part Time – After your official retirement, you could choose to take up some part time work to boost your income.
  • Savings and Investments – Seek financial advice to see if your savings and investments can be adjusted to work harder for you.
  • Check your Benefits – Check that you are getting all of the state help you are entitled to.
  • Downsize – If you want to retain the value of your home and don’t mind downsizing, you could sell your own home and buy somewhere smaller with the proceedings.
  • Lifetime Mortgages – An equity release method that works in a similar way. However, under this agreement, you can choose to pay monthly interest or roll-it-up and pay it all off upon your death or entry into long-term care. You can also choose to withdraw funds in instalments as a method for reducing interest owed. Or, if you have a medical condition, an enhanced lifetime mortgage may be right for you.

Home reversion plans, like other equity release products, incur significant risk to customers. It is, therefore, vital that you seek out independent financial advice from a trusted source.

Get in touch with an advisor today. They can offer you a free, no-obligation quote and advice.

You may also wish to take a look at some frequently asked questions about equity release, here.

I need a little help to understand the process. The adviser guided me through everything and was happy to have my family present during the meetings.
Bill Westwood, London

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