Home Reversion Plans Explained

Home Reversion Plans Explained

A Home Reversion Scheme is a financial product that enables you to release money from your home by selling all or part of it to the Home Reversion provider in exchange for a cash lump sum or income.

How Much Can You Release With A Home Reversion Plan?

The amount of money you can release from your home will primarily based on the value of your property value and your age (or the ages of you and your spouse/partner if it is a joint application).

Home Reversion Plan Example

If your house is currently worth £400,000 and you agree with the provider of your Home Reversion Scheme to sell 50% of it then you would probably expect to receive £200,000. However, the figure you receive will depend on your age: you are likely to receive only a proportion of this figure.

The reason for this is the Home Reversion Scheme will have estimated how long you are likely to continue to live in your home before they can get their money back. The younger you are, the longer they will have to wait and, therefore, the lower the amount of money you will receive. Also, the provider will not offer you the full market value as they are allowing you to live in the property rent free for life.

The cost of your Home Reversion Scheme is known at outset because it is the difference between the amount you receive from the lender and your house’s market value of the percentage sold.

Suitability of Home Reversion Plans

Because of the way Home Reversion Plans work, they are most suited to people who do not intend to leave any money in their estate when they die. There is also the added benefit of being able to release money from your home without then need to make any monthly re-payments.

Here is a summary of the advantages and disadvantages of Home Reversion Plans:

Advantages of Home Reversion Plans

  • No monthly repayments are needed so you do not have to budget accordingly.
  • You do not have to move out of your home – you will have a guaranteed right to remain in it for as long as you want.
  • You can continue to benefit from house price rises if you decide to take out a Home Reversion Plan which represents a small proportion of your house’s value. This means you will be able to leave an inheritance to pass on to your beneficiaries.
  • Where inheritance tax (IHT) might be of concern, the value of the property sold to the provider will have to be deducted from your estate and can, therefore, help reduce any IHT liabilities.

Disadvantages of Home Reversion Plans

  • Home Reversions Schemes are usually only available to applicants aged 65 or over.
  • It is difficult and, in most cases, impossible to reverse a Home Reversion Scheme once it has been taken out.
  • The structure of Home Reversions Plans means that, if you were to die in the early years of taking out the plan, the costs would be much greater than with a Lifetime Mortgage which is the most popular form of equity release.
  • You will be responsible making sure your home is well maintained and you will have to bear the cost of any upkeep.