If you own your own home, you've likely got tens or even hundreds of thousands of pounds tied up in it. That is money that you might want to be able to access as you make plans for your retirement and enjoying your later years.
A home reversion equity release loan involves selling all or part of your home, in exchange for a tax-free cash sum. When you die, the lender will sell your home to reclaim the money they are owed.
With equity release, you can unlock some of the cash held in the value of your home as a tax-free sum - either all in one lump or regular payments throughout the year. There are two different ways to release equity from your home - through a lifetime mortgage or through something called home reversion.
This guide will walk you through what you need to know about home reversions and how to decide if home reversion is right for you.
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Home reversion is an exchange of a share of your home in return for a tax-free payment. This money can be paid out either in one lump sum or in regular intervals as a form of income to help tide you over in your retirement.
Equity release of any kind comes with pros and cons. While a good option for some, it completely depends on your personal circumstances. For some people considering equity release, a lifetime mortgage will be more suitable.
In truth, they're both types of equity release that allow you to release cash from your home. What's different is who then owns the house and how things like interest work as lifetime mortgages are loans and home reversions aren't.
With a lifetime mortgage, you keep full ownership of your home no matter how much money you release from it. Home reversion is different. To get your cash payment here, you sell off a share of your home to a home reversions plan provider. You can sell off part or even all of your home - the larger the percentage of your home you sell-off, the more cash you get.
Link to 'Lifetime Mortgage (Equity Release)' article
While lifetime mortgages gain interest over time - meaning debt owed through repayments increases significantly over time - there is no interest charged with a home reversion. The percentage of the home sold is fixed until the plan ends, as is the cash you receive.
For part or all of your home, you tend to get between 20-60% of the current market value of your home in return. This figure is so low because you still get to live in the property, and the provider who buys the share cannot sell it or do anything with it until you either move into long-term care or pass away.
The amount of cash you get also depends on your age and your health when you take out the plan. This is because the company that owns the share of your home is taking a gamble on when they’ll be able to access their cash, given that this can only happen once the property is sold (after your death). This means the older you are when you take out the plan, the larger the sum of money you’ll typically be offered.
To be considered for a home reversion equity release plan, there are certain criteria to meet:
As a rough rule of thumb, home reversions are generally better suited to those over 70.
Even if you tick all the boxes, home reversion is a big decision to make. Be sure to carefully weigh up all of the advantages and disadvantages of equity release before you take the leap and sell off a part of all of your home.
The concept of a home reversion plan is that you sell a share in your home to a home reversion company. As a consequence, you will not lose ownership of your home, but you will become a part-owner with the home reversion company.
To all intents and purposes, this is a simple investment by the home reversion investor, but you will still be in charge of the day-to-day running of your home.
Yes. Historically home reversion plan attracted a degree of controversy often because of the significant discount to market value. As we have covered in various areas of this article, there are specific reasons why such discounts are used whether or not people agree with it.
However, if you were mis-sold a home reversion plan or somehow coerced into selling part of your property, then you may have recourse for compensation. All reversion plans are now regulated by the Financial Conduct Authority (FCA), and we have seen great improvements in consumer protections.
If you have concerns about the legality of advice given to you about a home reversion plan you should raise these concerns with the company involved as soon as possible. If you have no success, then you can contact the FCA, and they will make a formal request for more information.
The spectre of the FCA getting involved can often focus the minds of those who have perhaps given misleading or simply incorrect advice.
There is no simple answer to this question. If for example, the home reversion company had a 50% stake in your property which was valued at £100,000, they would expect you to move into a similar type of property. If you downgraded to a £50,000 property, then the value of their 50% stake would fall to 25%.
There are many factors to take into consideration, such as the value of the proposed property and potential for capital growth. It may turn out that you can transfer your home reversion plan to a new property but may have to make a financial adjustment to the home reversion company.
If you are looking to move to another property, it is important to speak with your home reversion plan provider as soon as possible to discuss the finer details. It may well be that you simply sell your existing property, downsize and pay off the home reversion plan with surplus capital. In this scenario, it would probably be best to take financial advice from an independent adviser.
One of the benefits of a home reversion plan, often overlooked by many people, is the fact that you will remain in your property rent-free until you either move into full-time care or pass away.
This is one of the major factors as to why home reversion transactions operate at such discounts to market value. If as an example, you were 60 years old and sold 50% of your property, then the home reversion company could have their money tied up for 20, 30 or more years with no income.
If you’re set on equity release, home reversion is not your only option. You could also get a tax-free cash payment in the form of a loan secured against your home - a lifetime mortgage. Here you keep full ownership of your home, with the loan debts being paid off when you die or have to go into care, and your house is sold.
There are other ways for older people to raise funds for later life, including:
With all its drawbacks, home reversion is sometimes seen as a last resort. Make sure you weigh up all of your options before making a decision and speak to an independent financial advisor for guidance if you aren’t sure how the long-term consequences could affect you.
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