Home reversion plan

What is a home reversion plan?

A home reversion plan is a form of equity release scheme. Equity release schemes are a way of releasing some of the value of your property in exchange for cash. Lifetime mortgages are another type of equity release scheme.

Home reversion plans can help fund your retirement, care costs, or other outgoings, without any need for repayments. They are approved by and monitored by the Financial Conduct Authority (FCA). The FCA is the UK’s financial regulatory body that oversees companies and quotes to ensure consumers get a fair deal.

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What happens when I take out a home reversion plan?

When you take out a home reversion plan, you sell your home, or a share of it, to a reversion company. Then, you will receive a cash lump sum, a regular income paid into your bank account, or a mixture of the two, in return.

Your property is sold at below-market value, and when you die or move out the reversion company take their share of the profits. Even if you sell all your property to the reversion company, you will receive a ‘lifetime lease’ on your home.

A lifetime lease allows you to stay in your home as a rent-free tenant until you die or move out of your home and into a long-term care facility. This gives you residential security throughout your retirement.

Here is a video that explains how a home reversion plan works.

Is there a limit to how much of my home I can sell?

You can sell up to 100% of your home, but you will receive below-market value for whatever share of your home you wish to sell. You may want to shop around for some different quotes, before deciding to go ahead with selling all or part of your home.

Do I qualify for a home reversion plan?

To be eligible for a home reversion equity release plan you must be over 65 years old, and a UK resident. In most cases your home must be worth at least £100,000, be made of standard construction, and the homeowner must live in England, Scotland or Wales. You will also need to have buildings insurance and a bank account for payments to be made into. If you are not looking to live in your home on a long-term basis, a home reversion plan is not for you.

How much can I get from a home reversion plan?

It is impossible to know exactly how much tax-free cash you might get from a home reversion plan. This is because the amount depends on your age and other personal circumstances, for example, your health.

People who are older when they take out their home reversion plan are likely to receive a higher amount in return. However, you will never receive full market value with any plan. This is because the equity release company is taking a risk.

They do not receive any money back from the agreement until they are able to sell the home, either when the homeowner dies or moves into permanent residential care. Normally, though, homeowners receive between 20-60% of market value.

Consider using a home reversion calculator to estimate the tax-free lump sum/income you might receive. Remember, though, these are only a guide, and the exact amount may vary.

Should I choose a lump-sum or regular cash payments?

If you opt for a lump-sum from your lender you have more freedom with your money. However, you may risk spending all of the cash too soon, particularly if you live to a very old age.

Regular payment plans provide a steady income and protect against this. However, if you do not live for very long after taking out the plan a large percentage of your inheritance may be lost.

Some lenders offer protection against this, by giving your family a rebate if you die in the first few years, so be sure to check the details of your plan.

There is also an option to have an initial lump-sum, and then the rest of your entitlement as a regular income. This is often the most popular choice, as it provides a mix of security and freedom.

What are the alternatives to a home reversion scheme?

Another type of equity release scheme that you could consider is a lifetime mortgage. With this scheme, you remain the owner of your home and borrow money from a lender. Then, when you die or move to a permanent care facility, you pay the money back, with interest.

There are also some alternatives to equity-release schemes that you could consider to help you fund your retirement and care.

For example, you could consider downsizing if you are willing to move. You could also take out a standard remortgage, take out a loan, or rent out part of your property to a tenant. Each of these options has their own pros and cons, so be sure to research what is right for you before making a final decision.

"When you take out a home reversion plan, you sell your home, or a share of it, to a reversion company. Then, you will receive a cash lump sum, a regular income paid into your bank account, or a mixture of the two, in return."

What are the differences between home reversion schemes and lifetime mortgages?

When you opt for a home reversion scheme you sell all or part of your home to a home reversion provider. Thus, you are not the only owner of your home, you only own a certain percentage.

With a lifetime mortgage, however, you get to stay the homeowner, and the deeds to your home are kept in your name.

With a home reversion scheme, no interest is accumulated, because the money you receive is not a loan but your own. However, with a lifetime mortgage interest will accumulate over time.

You don’t have to repay your mortgage and interest monthly, though. This is because the mortgage and interest is repaid when you die or move to permanent residential care.

Lifetime mortgages are generally more popular than home reversion schemes; according to the Equity Release Council home reversion schemes only make up 1% of new equity release plans. This does not mean a lifetime mortgage is right for you, though.

Always seek professional advice before taking out either of the above equity-release schemes.

Are home reversion plans regulated?

Home reversion plans are approved and monitored by the Financial Conduct Authority (FCA). The FCA works to protect consumers and manage the integrity of the market.

They ensure firms meet set standards and have sufficient complaint and compensation procedures in place. The FCA have established some key rules and regulations for lenders, such as the no negative equity guarantee.

This guarantee means that if your home sells for less than the amount you received from the lender, you are not liable. All providers of home reversion schemes are regulated by the FCA.

When choosing a company for your equity release plan, you should ensure they are a member of the Equity Release Council (ERC). The ERC safeguards customers by ensuring that all its members follow the ERC’s ‘overarching principles’.

What are the benefits of home reversion plans?

With a home reversion plan, you are given lifetime tenancy in your home, allowing you to remain living there for as long as you can, rent free. There is no hassle with moving house, and all plans are interest free.

You do not have to sell all the property, and taking out a plan can help reduce your inheritance tax liability. Finally, if the market value of your property increases, you receive your proportion of the extra cash.

Are there any drawbacks to a home reversion plan?

One disadvantage of these schemes is that you receive below market value for your property, and you may still be liable for costs such as ground rent.

Whilst you live rent-free, you are still required to pay your own utility bills and council tax. Often, the home reversion plan provider will expect you to be responsible for maintenance and repairs in your property.

Another major drawback is that the money you earn from a home reversion can impact your income assessment. This, in turn, may affect your entitlement to means-tested benefits and support from your local government.

Also, if you decide to end your plan early you may have to buy back the share of the property you sold at a higher price. This is because the value of the property may have increased since selling.

Finally, a home reversion scheme can reduce the inheritance your beneficiaries receive. This is because when you decide to sell part of your property, the value of your estate is reduced. Thus, beneficiaries only receive money from the part of the home that you own after taking out the home reversion plan. and if you

Will I be charged interest?

Home reversion plans do not require any interest to be paid, unlike with a lifetime mortgage. This is because the lump sum you receive in return for selling your property is not a loan, but your own money.

When you die or sell your home (for example if you move into long-term care) the provider receives their percentage of the sale proceeds, as in your agreement.

So, if you sell 40% of your property, the home-reversion plan provider will take 40% of the sale price, and the remaining 60% is given to your estate.

Therefore, the exact amount your beneficiaries receive when you die depends on house prices and your property value. If you sell all of your home to the company, they will take all proceeds, and your beneficiaries will not receive any money.

What other costs might I incur?

You will need to pay an arrangement fee to your provider, and a fee to the adviser that helps you set up your scheme. You will also need to pay valuation fees. It is important to get an independent evaluation of the property’s value, rather than using a valuation proposed by the reversion company.

This is because the valuation determines the selling price of your home, and thus the amount of money you get.

We also recommend having the terms of your lease analysed by an independent solicitor, which will involve some legal fees.

Finally, you will need to pay any maintenance costs for your home, throughout your tenancy there. If you would like to end your home reversion plan before you die or move out, you will need to repurchase your part of the property.

Current property prices will impact the cost of doing this. Thus, you may end up paying more than you borrowed from the lender, in order to buy your share of the property back.

Is a home reversion plan for me?

Before taking out any plan, you should consider the home reversion plan pros and cons, and seek financial advice from a reliable financial services company. Be aware that companies may charge an advice fee for their services.

You should also discuss your options with your family, because your decisions may impact the inheritance they receive. They may prefer to help support you through your retirement, if they can.

You should also consider a lifetime mortgage, as these are currently the most popular type of equity-release product. If you decide that equity-release is right for you, you can estimate how much you might be entitled to using an equity release calculator such as a home reversion plan calculator.

Remember to speak to an expert adviser about how equity release may affect your entitlement to means-tested benefits before taking out a plan. Finally, make sure that the provider you choose for your equity release scheme is a member of the Equity Release Council.

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Other articles related to Home Reversion Plans you will find useful

What is a Home Reversion Plan?

A home reversion plan is a form of equity release scheme. Equity release schemes are a way of releasing some of the value of your property in exchange for cash. Lifetime mortgages are another type of equity release scheme.

Home Reversion Calculator

An equity release home reversion plan calculator gives you an idea of how much money you can get with home reversion. Typically, equity release may range between 20%-60% of the value of your property.

Home Reversion Companies

A mixture of companies such as insurance providers and retirement providers offer home reversion in the UK. There are far more lifetime mortgage providers than home reversion providers. 

Equity Release Interest Rates

Equity release interest rates tend to be higher than rates associated with a standard bank loan. For this reason it is not for everyone. For example, equity release is most suited to people who need large sums of money.

Is Equity Release a Good Idea?

Releasing equity is one of the most popular ways to access cash in later life. As a result many people are asking: ‘is equity release good or bad’? The answer to this question is not straightforward and this article looks at this.

Paying for Care

The cost of care can be a stressful issue at a sensitive time. Funding care is an important consideration when planning your income in retirement and long term care. This article looks at the different options available.

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