What’s a Home Reversion?
Home reversion makes it possible to live in your property rent-free and sell it for a tax-free lump sum at the same time.
You’re probably thinking, this sounds too good to be true. Well, the good news is, it’s not!
This could be the saving grace you’ve been searching for to combat retirement financial worries.
What’s the catch, you ask?
As experts in our field, we discuss the following in this article:
Our financial journalists work tirelessly by scouring the latest financial news to ensure that we bring you reliable and up-to-date information. We’re constantly updating our home reversion information with the latest industry updates.
Here’s what we’ve found.
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What’s Home Reversion?
A home reversion plan is an equity release product available to those older than 65.
Home reversion lets you sell your property or a share in it, and you’ll still get to live there rent-free as a life-long tenant.
How Does a Home Reversion Plan Work?
A home reversion plan works by you selling a portion of your property or the entire property below market value to a home reversion provider in exchange for tax-free cash.
With that comes a lifetime tenure until you pass on or go into permanent care.
There’s no interest payable, and the provider will recover its share when your home is sold.
Here we look at some examples.
Full Reversion Example
If you do a full reversion, you sell your home to a provider in its entirety.
If your home’s worth £100,000, you may agree to part with the property for £60,000.
You can continue to live in your house rent-free until you pass on or move into long-term care.
When this happens, your home may be sold for £150,000; the provider gets the sale profits as your estate no longer has a legal claim to it, and your beneficiaries will lose out.
Partial Reversion Example
When you choose a partial reversion offer, you agree to sell a share of your property to the provider in exchange for lifetime tenure.
If your property is worth £100,000 and you agree to sell a 70% stake in the property for £50,000, you’ll be losing out on future market value.
The property may be sold for £200,000 when you pass away.
The provider will get 70% of the sale price, which is £140,000, while your beneficiaries will receive the balance due to your estate.
What Are the Advantages of a Home Reversion Plan?
The advantages of a home reversion plan are that you can guarantee an inheritance for your beneficiaries and get a tax-free lump sum.
There are no monthly repayments to be made with home reversion, and you can still move house if you choose to.
Home reversion plans allow you to plan for inheritance tax and benefit from future property price increases.
You’re also protected against possible falling property values.
Guarantee an Inheritance
You can guarantee an inheritance for your loved ones if you sell a portion of your property.
The share in the property the provider owns is fixed.
The provider and your beneficiaries will share profits from your home’s sale as per the property shareholding.
Get a Tax-Free Lump Sum
The lump-sum you’re paid out by the home reversion provider is tax-free.
No Monthly Repayments to Make
There aren’t any monthly repayments to make when you use home reversion as it’s based on a sale of a share in your property.
You’ll be able to move home later on because home reversion plans are portable.
There may be conditions that your provider requires you to stick to; it’s best to check this upfront.
Benefit From House Price Rises
Your estate will benefit from rises in house prices along with the home reversion provider in the future when your home is sold.
Protect Against Falling Prices
Your estate is protected against falling property prices as you have already released a portion of your property’s equity at a higher market value.
Inheritance Tax Planning
You can use home reversion for inheritance tax planning as you technically remove the property from your estate.
Your estate then isn’t liable for inheritance tax on your property, or at least not for a substantial portion thereof.
What Are the Disadvantages of a Home Reversion Plan?
There are disadvantages of a home reversion; reversing it can be expensive, and your family could lose out on inheritance if you sell 100% of your home.
You won’t benefit from future property price increases, and if you use a full reversion plan, you won’t own your home anymore.
You also need to be 65 and older to use home reversion, whereas a lifetime mortgage is available from 55 and up.
Here’s more details.
Reversing It Is Expensive
Reversing a home reversion plan can be expensive.
You’ll need to buy back the share purchased by the home reversion provider at current market prices.
The amount owed could be significantly higher than when you sold, leaving you with a shortfall to pay in.
Your Family Could Lose Out
Your family could lose out on inheritance if you sell your property in full.
If you pass on or move into care soon after you sell a share in your property, your family will lose a significant amount in market value after your home is sold.
You Won’t Benefit From Future House Price Rises
You won’t benefit from any future price rises on the portion of the property you have sold.
If You Sell 100% Of Your Property
If you sell 100% of your property, your beneficiaries will be left with nothing to inherit.
You No Longer Own 100% Of Your Home
You’re no longer the 100% owner of your property.
You may only be a part-owner or have no interest in your home at all, depending on the size of the share in your home that you sell.
You Have to Be 65
You must be 65 to qualify for home reversion, not 55, as with lifetime mortgages.
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How Much Money Could I Receive With a Home Reversion Plan?
You can generally receive between 30% and 60% of the market value of your property.
The exact amount will depend on your health and your age.
How’s a Home Reversion Calculated?
Home reversion is calculated by taking your age and the size of the share you want to sell in your property into account.
The percentage of your home value you could receive will increase with your age.
How Will I Receive My Money?
You’ll receive your money as a tax-free cash lump sum paid into your bank account.
Do I Have to Pay Interest on a Home Reversion Scheme?
You don’t have to pay interest on a home reversion scheme because you sell all or part of your property for a tax-free lump sum.
Who Can Get a Home Reversion Plan?
You can get a home reversion plan if you’re a UK homeowner over 65.
There’s only a few dedicated providers offering this option.
What Are the Eligibility Criteria for Home Reversion Plans?
The eligibility criteria for home reversion plans are that:
- You must be over 65.
- In a joint application, the youngest applicant must be 65.
- The property you own must be valued at £80,000 or more.
Will Eligibility Be Affected by My Location?
Your location may affect your eligibility as some providers only work in certain parts of England.
Others only operate in England and exclude The Channel Islands and The Isle of Man.
Younger borrowers might be considered for home reversion from 55 years of age.
In the case of joint applicants, the youngest must be 55.
Borrowers under 55 who’ve got equity in their home and want to access it could apply for a second charge loan on their property as an alternative.
Health & Home Reversion
Home reversion can benefit those in poor health.
It allows people with ill health to access a more significant percentage of their home’s value.
This could benefit them to fund live-in care.
Home Reversion on Non-standard Properties
Non-standard properties are generally not accepted for home reversion; however, each provider will accept properties based on their specific criteria.
Home Reversion With Multiple Issues
Home reversion with multiple issues related to the qualification criteria is challenging.
However, in that case, a good financial adviser will still be able to plead your case and negotiate on your behalf to try and obtain a deal for you.
How Can I Get the Best Deal on a Home Reversion Plan?
You can get the best deal on a home reversion plan if you speak to an accredited financial adviser1 who specialises in these products to assist you.
They’ll consider all the options available to you based on your set of circumstances.
Once they know your financial situation, they can guide you toward getting the best deal.
How Do I Carry Out a Comparison of Home Reversion Plan Rates?
To carry out a comparison of home reversion plan rates, you should use an independent financial adviser.
They have access to the whole market’s products and can give you a comparison of what’s available to you.
What Are the Alternatives to Home Reversion Plans?
The alternatives to home reversion plans are lifetime mortgages, retirement interest-only mortgages, and downsizing.
Here’s more details.
Lifetime mortgages have gained popularity in the equity release market and offer incredible flexibility compared to home reversion plans.
Retirement Interest Only Mortgages
Retirement interest-only mortgages are also products you may want to consider when looking into later life borrowing.
It’s a loan secured against your home, and you only pay the monthly interest amount.
You could consider downsizing.
This is when you sell your current home and move to a smaller, less expensive property.
You’ll be able to release equity from the sale proceeds.
Are Home Reversion Schemes Regulated?
Home reversion schemes are regulated by the Equity Release Council and overseen by the Financial Conduct Authority2 (FCA).
Who Can Help Me Find the Best Company for a Home Reversion Plan?
Your financial adviser can help you find the best company for a home reversion plan.
Which Lenders Offer Home Reversion Plans?
The lenders that offer home reversion plans are Retirement Bridge Group, Age Partnership, Equity Release Supermarket and Crown Equity Release.
Here’s some more information about them.
Retirement Bridge Group
Retirement Bridge Group offers home reversion plans through its subsidiary companies.
The plans are managed and administered by Retirement Bridge Management Limited, part of the group.
The biggest subsidiary company in the group is Bridgewater Equity which is a renowned home reversion provider.
Retirement Bridge Group subsidiaries include:
- Home and Capital
- Norwich Union
- In-Retirement Services
Age Partnership offers home reversion schemes from market-leading providers.
Its team of qualified equity release advisers can assist you with advice about home reversion.
Equity Release Supermarket
Equity Release Supermarket is an industry leader in providing equity release advice.
One of their certified member advisers in your area will be able to assist you with home reversion plans.
Crown Equity Release
Crown Equity Release is an independent home reversion specialist and operates in the retirement capital raising space.
It’s been offering a bespoke home reversion service to retirees since 2001.
How Do I Get a Home Reversion Plan?
You can get a home reversion plan through your accredited financial adviser.
What Is the Difference Between Equity Release & Home Reversion?
Home reversion is one of many types of equity release products.
Equity release is a term that encompasses both home reversion plans and lifetime mortgages.
Is Home Reversion Right for Me?
To find out if home reversion is right for you, you’ll need to talk to your financial adviser, who can assist you.
Can You Transfer the Home Reversion Scheme if You Want to Move?
You can transfer the home reversion scheme if you want to move. However, you’ll need to ensure the exact criteria involved when doing so.
How Will Taking Out a Home Reversion Affect Your Income Tax Position & Your Eligibility for Benefits?
Home reversion is paid out as a tax-free lump sum, so it won’t affect your income tax position.
However, it could be seen as an income by the state and could affect your eligibility for benefits3
Your financial adviser can assist you further with this.
What Conditions Does the Home Reversion Impose on You for Continuing to Live In Your Home?
You can continue to live in your home rent-free until you pass on or move into permanent care.
Your provider will hold you responsible for insurance of your property and paying rates and maintenance-related costs.
Home Reversion Plan or Lifetime Mortgage?
Home reversion plans were the precursors to the more modern and flexible lifetime mortgages now offered by most providers who specialise in later life lending.
Your product depends on your needs; however, most retirees opt for a lifetime mortgage.
A home reversion plan isn’t as flexible as a lifetime mortgage and comes with homeownership loss, either in whole or in part.
It’s always best to check with your financial adviser to see if home reversion suits your needs before making any commitments.
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