Home reversion plan guide – all you need to know

Over 60, a homeowner and in need of some extra cash? If so, you might be considering equity release. To help you weigh up the pros and cons and decide whether releasing equity is the right course of action for you, we’ve put together a series of simple guides covering the essentials. In this guide, we explain home reversion plans, the less popular but no less relevant type of equity release scheme.

What is a home reversion plan?

A home reversion plan enables you to free up cash locked in the value of your home by selling all or part of it to the scheme provider at below market rate. The money you release is tax-free and yours to spend as you please.

You continue to live rent free in your home until you die or move permanently into long-term care.

How does a home reversion plan work?

A home reversion plan works by allowing UK homeowners over the age of 60 to access cash tied up in their home by selling it, or a percentage of it, at a significantly reduced price to a home reversion scheme provider.

The cash you receive from the sale is yours to do with as you wish and you can choose to take it as a cash lump sum, drawn down in instalments when needed or a combination of the two.

When you die or move into long-term care and your property is sold, your home reversion plan provider will take their percentage share of the proceeds. The remainder (if any) forms part of your estate.

How much money can you release from your home?

How much money you can release from your home with a home reversion plan depends on your age (or the youngest applicant’s age if applying jointly), health and your property’s value. Generally, the older you are, the more money you can get.

You can sell anywhere between 25% and 100% of your home’s value. However, lenders will often have a base limit for how much your house has to be worth for you to be eligible – usually about £70,000. The amount providers offer you will typically be between 20% and 60% of your home’s full market value.

The pros and cons of home reversion plans

While home reversion plans only make up a very small part of the equity release market, they could still be a good option for you to consider. Here are the pros and cons of home reversion plans:

  • The money you release is tax-free and you don’t pay interest on it
  • You can continue living in your home rent-free for the rest of your life or until you go into full-time care
  • Releasing equity from your home can reduce your Inheritance Tax bill
  • If you only sell a portion of your home, you can leave a share as an inheritance for your loved ones
  • You don’t have to go through the stress of moving house to access the equity tied up in the value of your home

As with anything, there are some drawbacks to home reversion plans that should be considered:

  • You’ll receive substantially less than the market value of your home
  • You will no longer be the sole owner of your property
  • You’ll still need to maintain your home to a good standard out of your own pocket
  • If you sell 100% of your house to your provider, you won’t benefit from any rises in its value and it cannot be passed on to your loved ones
  • Even selling a percentage of your home will significantly reduce the inheritance you leave behind
  • Having a home reversion plan could affect your eligibility for means-tested benefits
  • If you decide to end your plan early you would have to buy back the lender’s share at the current market value not the discounted price you sold it for
  • A home reversion plan could be poor value for money if you die soon after taking it out, although some plans may offer a rebate

Speak to an independent equity release specialist

When considering an equity release scheme, speak to a qualified, independent equity release adviser who can compare lifetime mortgage and home reversion plan providers on your behalf and find you just the right deal for your needs.

We work with the award-winning equity release specialist Age Partnership who can talk you through your options, explain the alternatives to equity release and compare leading providers on your behalf. Call 0800 368 8466 to arrange your free, no-obligation consultation today.

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