What’s a Home Reversion?

How Does a Home Reversion Plan Work in 2022?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Considering a Home Reversion Scheme? There Are a Number of Scheme Types to Consider. Discover All These & Learn Which Option Could Be Right for You.

What’s a Home Reversion?

A home reversion scheme is a brilliant retirement product that allows older homeowners to stay in their home even after they’ve sold it.

However, there’s essential information you must be aware of to avoid making any decisions you’ll regret

. Perhaps there’s a reason why lifetime mortgages are vastly more popular than home reversion schemes in 2022?

Or maybe, not?

We’ll help you discover:

  • What’s a home reversion scheme?
  • How a home reversion scheme works.
  • How much equity you could stand to unlock with these plans.

We’ve spent countless hours researching over 200 regulated equity release plans to bring you the latest, concise information about releasing equity through a home reversion scheme in May 2022.

Let’s take a look at what we’ve found!

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What is a Home Reversion Plan?

A home reversion plan is one of the 2 most popular types of equity release available on the market.

You will usually need to be between 60 and 65 years old to opt for one of these plans.

You may use it to unlock tax-free cash by selling all or part of your house below market value1.

Despite the sale, you’ll be allowed to live there, rent-free, for the rest of your life.

How Does a Home Reversion Plans Work?

A home reversion scheme works by the homeowner selling all or part of their property in exchange for a lump sum of cash, regular payouts, or both.

The equity release company gets their percentage of the profits when the home is sold, based on the amount they originally acquired (up to 100%).

How Much Cash Can I Unlock With a Home Reversion Scheme?

The amount of cash you can unlock with a home reversion scheme is between 20% and 60% of the part of your property you sold to the lender.

The amount is determined by your age, the property value, the percentage you sell, and possibly your health condition.

Should I Select a Lump Sum or Drawdown With a Home Reversion Scheme?

Whether you should opt for a home reversion scheme in the form of a lump sum, drawdown, or a combination of both is dependent on your personal circumstances.

If you don’t need a large cash injection, a drawdown is always preferable as you only pay interest on the cash you unlock.

However, you can opt for an initial lump sum, followed by a drawdown facility being put in place.

What Are the Pros & Cons of a Home Reversion Scheme?

The biggest pro of the home reversion plan is that even though you’ve sold your home, you can still live there. 

The main con of a home reversion scheme is that you will leave a smaller inheritance to your heirs.

Wondering if equity release is a good idea? Check these out:

What are the Advantages of a Home Reversion Scheme?

The biggest advantage of a home reversion scheme is that you can live in your home, rent-free, for the rest of your life.

Other advantages include:

  • The cash you release is tax-free.
  • You can stay in your home without paying rent for the rest of your life.
  • You’ll be supported by a professional adviser throughout the process.
  • your family will owe less inheritance tax when you pass away.
  • You can still keep aside a portion of your estate2 for your heirs.
  • There are no compulsory repayments in your lifetime.

What Are the Disadvantages of a Home Reversion Scheme?

The main disadvantage of a home reversion scheme is that you don’t access the full value of your property.

Further disadvantages include:

  • Your access to means-tested benefits will likely be impacted.
  • You’ll be leaving a smaller inheritance.
  • You’re no longer the sole owner of your property.
  • There are fees involved.
  • You’ll need to have building insurance and maintain your property.
  • If you end your plan early, you’ll need to pay back the lender’s portion at market value.

How Much Equity Can I Unlock with a Home Reversion Plan?

With a home reversion scheme, you can unlock between 20% and 60% of the equity in the portion of your property that you sold to a lender.

The amount you can access will depend on your age, your property’s value, and the percentage of the property you unlock.

What Are the Alternatives to a Home Reversion Scheme?

The most popular alternatives to a home reversion scheme are lifetime mortgages and downsizing to a smaller or cheaper property.

Other alternatives include:

  • Taking out a personal loan.
  • Asking for assistance from family.
  • Selling other assets or antiques.
  • Getting a part-time job.
  • Reducing your expenses.

How Do I Arrange a Home Reversion Scheme?

To arrange a home reversion scheme, you need to get in touch with a whole market financial adviser or an equity release lender that offers home reversion plans.

Since you require financial advice with equity release, some lenders have in-house advisers.

However, we always recommend an independent adviser as they have access to the full industry.

How Do Home Reversion Schemes & Lifetime Mortgages Differ?

The main difference between a home reversion scheme and a lifetime mortgage is that you sell your property with the former, but you retain 100% ownership with the latter.

With only 1% of equity release borrowers opting for home reversions, lifetime mortgages are vastly more popular.

This is likely because lifetime mortgages offer plans with more flexibility.

Are Home Reversion Schemes Regulated?

Yes, home reversion schemes are regulated.

You may have been wary of these products in the past, but they are now regulated and supervised by the Financial Conduct Authority (FCA)3.

Reputable equity release companies will also be members of the Equity Release Council (ERC), which establishes rigorous standards for its members to follow.

Got Questions About an Equity Release Mortgage?

What's A Lifetime Mortgage?

What Lifetime Mortgage Types Are There?

How Well Did Home Reversion Schemes Perform in 2021?

In Conclusion

While home reversion schemes are a fantastic equity release option, lifetime mortgages are vastly more popular.

What’s great about a home reversion is that you don’t have to worry about compound interest, but they do offer less flexibility.

However, there is hope for home reversion schemes.

The Equity Release Council released their Q4 Equity Release Statistics4 and the product popularity grew by 24% in 2021.

Since the equity release process is a huge decision, you must chat with a financial adviser before making any concrete decisions.

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.