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.
What Is an Equity Release Home Reversion Plan?
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.
- – Equity release early repayment charges explained
- – Top 10 equity release facts
- – Equity release mortgage qualification
We update all our guides regularly. If you are researching Equity Release and we haven’t got an exact guide that helps you, keep coming back as we update daily.
What Is a Home Reversion Plan?
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.
According to the Equity Release Council 37,000+ people used Equity Release schemes in 2018, releasing over £3.06bn from their properties.
How Is Home Reversion Different to a Lifetime Mortgage?
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.
How Much Can You Borrow With a Home Reversion Plan?
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.
Who Can Apply for Home Reversion?
To be considered for a home reversion equity release plan, there are certain criteria to meet:
- You have to meet a minimum age – some providers say 55, while most say 65
- Your home has to be worth a certain value – usually at least £80,000
- Some reversion plan providers only cover properties in certain geographical locations
- Some reversion plan providers won’t consider any property that isn’t ‘standard construction’ – so some will refuse retirement homes or listed buildings, for example
As a rough rule of thumb, home reversions are generally better suited to those over 70.
Is Home Reversion Right for You?
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.
Pros of Equity Release Through Home Reversion
- The equity release is tax-free and can be paid as a lump sum, regular payments, or both
- You will have readily-available capital which can be used to support family members, ease any financial strains during your retirement or pay for care if you need it
- You’re able to stay in your own home rent-free for the rest of your life
- If the value of your house goes up, you benefit from your share increasing too
- You can fence off a portion of the value of your home to pass on as inheritance
Cons of Equity Release Through Home Reversion
- You no longer own all of your home, and if you sell off a larger share then the company will benefit more from your house value increasing than your family will
- You will not receive the full market value for your property when you sell it to the home reversions plan provider – it’s capped at a maximum of 60%
- You won’t be able to leave the entire property in your will, and it will need to be sold after you die
- The tax-free sum could affect your entitlement to means-tested benefits such as pension credit or council tax credit
Will I Lose Ownership of My Home by Taking a Home Reversion Plan?
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.
Are Home Reversion Plans Regulated?
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.
Average Age of New Customers for All Equity Release Plans Agreed in the UK
This statistic illustrates the average age of new customers for all equity release plans agreed in the United Kingdom (UK) from the first half of 2014 to the second half of 2019, by type. Equity release plans are designed to allow homeowners to access some of the value of their property without the need to sell their house and move out. It can be seen that the average age remain overall on the same level during this period. It was approximately 71 years of age as of the second half of 2019 for new drawdown plan customers and 68 for new lump sum plan customers.
Can I Move Home With a Home Reversion Plan?
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.
Will I Pay Rent Under a Home Reversion Plan?
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.
Alternatives to Home Reversion
Equity Release: Lifetime Mortgage
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.
Releasing Cash Through Other Means
There are other ways for older people to raise funds for later life, including:
- Downsizing into a smaller home or moving to a cheaper area
- Withdrawing money from savings or investments
- Taking out a secured or unsecured loan
- Pension drawdown
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.
Quick Equity Release FAQs
Home reversion plans are, in essence, a means of selling a share in your property to an investor, in exchange for payment. There are no repayments, with the investor receiving their share of proceeds when the property is eventually sold.
The Equity Release Council is the industry body which represents equity release providers, qualified financial advisers, solicitors and intermediaries. Equity release is a growing sector, especially for older homeowners who may have limited access to finance.
You need to be at least 55 years old to apply for equity release in the UK. If you are planning to make a joint application, this applies to both of you.
Equity release drawdown works by giving you the value of your loan as a pot that you can make withdrawals from. You’ll only pay interest on the money you decide to withdraw.
How Can Money Savings Advice Help You With Releasing Equity?
Here at Money Savings Advice, we have partnered with some of the UK’s leading Equity Release brokers. They have already helped thousands of people get the best Equity Release deal and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.