Home Reversion Schemes….
Home reversion plans operate in an entirely different way to lifetime mortgages. You sell all or part of your property to the reversion company in exchange for a cash lump sum.
Home reversion schemes are less common and require you to sell part or all of your property to a company in return for either a lump sum or a regular income. When your property is sold, you will only receive the percentage of the value that you still own.
As part of the deal, the reversion company grants you a lifetime lease for your property. This gives you the right to remain in your own home rent-free for the rest of your life or for as long as you wish.
How does it work?
Reversion plans are simple for the purposes of inheritance planning as you’ll know exactly what proportion of your property you’re able to leave as an inheritance.
Your share of the property will benefit from house price increases.
There is no worry over interest rates, as your share will never change unless you decide to sell more of your home.
The money can be used for any purpose and can cover specific expenses such as home improvements or to pay university fees.
Home reversion plans are not loans and so there’s no interest to pay. However, if your property increases in value, you will only benefit from the increase in the value of the proportion you still own.
Things you should consider
- Although you don’t pay rent, you no longer own 100% of your home
- Your estate will miss out on some share of any house price growth
- The percentage of your home is sold for less than the market value
- It can be difficult to reverse the deal once it has been made, as you are selling part of your home
- A home reversion plan will reduce the value of your estate and may affect your entitlement to state benefits
- If you pass away soon after taking out the plan, you have effectively sold your property cheaply. However, some plans have provisions in place so that you are protected
Pros of a Home Reversion plan
- You get a tax-free lump sum that you can spend on whatever you like
- You are still able to move house if you want to, as most plans can be moved to another property
- You know as soon as you set up your plan what percentage of your home you will be able to pass on to your loved ones
- You don’t pay any interest like if you had a Lifetime Mortgage
And The Cons of a Home Reversion plan
- You’re no longer the sole owner of your home.
- The money you take out could affect any means-tested benefits you’re entitled to now or in the future
- You can’t take out a Home Reversion Plan until you’re 65
- If you decide you would like to buy back the part of your property you sold, you need to buy it back at market value which will mean paying more than the amount you received
- Selling all or part of your home through a Home Reversion Plan will reduce what you can leave to your loved ones when you die
If you are considering equity release we recommend that you read is it right for you? carefully.