If you think that living in your home after you have sold it is impossible, you may not have thought of a home reversion plan.

With home reversions making up less than 1% of the equity release market, is it a good or bad idea?¹

Here at SovereignBoss, we are continuously staying up-to-date with the market, to bring you the latest equity release news and deals, including the world of home reversion schemes.

Could it be a solution to your retirement financial needs?

Therefore...

What Is a Home Reversion Plan, and How Does It Work in the UK?

A home reversion plan involves selling a portion of your home to a provider in exchange for a lump sum or regular payments in the UK.

Understanding Home Reversion Plans in the UK

A home reversion plan is a financial product specifically designed for homeowners, usually aged 65 and over, living in the UK.

It allows homeowners to access the equity in their homes without needing to move by selling a percentage, or all, of their property to a reversion company, typically at a below-market value, in exchange for a tax-free lump sum or regular income.

Homeowners retain the right to live in the property rent-free for their lifetime or until they move into long-term care.

Upon the homeowner's passing or transition to permanent care, the property is sold, and the proceeds are divided based on the agreed ownership proportions.

The reversion company receives its share of the sale proceeds accordingly.

While this scheme provides a way to unlock home equity, it comes with potential benefits and drawbacks.

Homeowners might receive less than the market value for their property, which could also impact state benefits.

It is essential to seek independent financial advice before proceeding with a home reversion plan.

Importantly:

Homeowners remain responsible for the property's maintenance and insurance throughout the duration of the agreement.

Who Qualifies for a Home Reversion Plan, and What Financial Benefits Can You Expect?

Qualification typically requires homeowners to be over 65, offering financial benefits like a cash lump sum and a rent-free residency.

Who Is Eligible for a Home Reversion Plan?

To be eligible for a home reversion plan, you must meet certain criteria, including: 

• You need to be at least 65 years old, although some providers may have a minimum age requirement of 55. 
• You must own a property that meets the criteria set by the reversion company, which typically includes the property's value and it's location within the UK. 
• Lastly, you need to have a property that is freehold or has a long leasehold.

Additional criteria may apply and are lender dependent.

What Cash Amount Can You Unlock With a Home Reversion Scheme?

The amount of cash you can unlock through a home reversion scheme depends on various factors such as your age, the value of your property, and the percentage you are willing to sell. 

Typically:

The older you are, the higher the percentage you can sell and the greater the amount you can release. 

Reversion companies usually offer between 20% and 60% of the property's market value.²

But it is important to note that the amount offered is lower than the property’s market value to account for the fact that you will continue to live in the property rent-free.

A home reversion calculator can give you a rough estimate of what you can unlock, but for a more accurate figure, it is best to consult with a professional advisor.

How Can You Calculate the Potential Financial Release from Your Property with a Home Reversion Plan?

To calculate the potential financial release from your property, you'll need to consider the current market value of your home and the percentage of the property you're willing to sell.

Providers typically offer a lump sum based on their valuation of the portion you sell, taking into account your age and health as well.

Online calculators specific to home reversion plans can give you a preliminary estimate, but consulting directly with a provider or financial adviser will yield a more accurate figure tailored to your circumstances.

What Are Some Examples of Home Reversion Plans?

Here are two examples to illustrate how a home reversion plan works:

Example 1

Sarah, aged 70, owns a property worth £400,000 and decides to sell 40% of the property through a home reversion plan. 

The reversion company pays her a lump sum that is a portion of £160,000 (20% - 60%), and Sarah continues to live in her home for the rest of her life or until she moves into long-term care. 

When the property is eventually sold, the reversion company receives 40% of the proceeds.

Example 2

John, aged 75, has a property valued at £500,000. 

He opts to sell 100% of the property through a home reversion plan and receives a lump sum which is a portion of £500,000 (20% to 60%). 

John retains the right to live in his property without paying rent until he passes away or moves into long-term care. 

When the property is sold, the reversion company receives 100% of the proceeds.

*These figures and examples are for indicative purposes only.

What Are the Pros and Cons of Choosing a Home Reversion Plan?

Pros include securing a cash sum or income without debt; cons involve losing ownership of part of your property and potential undervaluation.

What Are the Benefits and Drawbacks of Home Reversion Plans?

The pros and cons you can expect with a home reversion plan are that you will receive tax-free cash, but it will not be reflective of the full market value of your property.

Advantages

Further home reversion benefits that make it a beneficial product for some are:

• Release of equity: Access to the value tied up in your property, providing you with a lump sum or regular income to meet your financial needs.
• No interest payments: You are not required to make any monthly payments, which can help to alleviate financial stress during retirement.
• Lifetime occupancy: You have the right to live in your property for the rest of your life or until you move into long-term care.

Disadvantages

It is advised to be cautious of these disadvantages when considering a home reversion plan:

• Reduced inheritance: By selling a share of your property, your estate will be reduced and property is often your biggest asset. 
• Limited flexibility: It can be challenging to change or cancel the arrangement, which may not suit everyone's circumstances.
• Unfavourable financial impact: The homeowner will receive less value from the property than its market worth, resulting in potential financial loss in the long run.

It is imperative to consult with a qualified equity release advisor or broker who can help you navigate the intricacies of a home reversion plan to determine whether it is the best solution for your circumstances and goals. 

What Long-Term Financial Implications Should You Consider Before Choosing a Home Reversion Plan?

Before opting for a home reversion plan, consider its impact on your estate's value and how much inheritance you can leave behind.

The portion of your property sold to the provider will not be inherited by your family, which could significantly reduce their future financial benefits.

Additionally, it's important to understand that the amount you receive is often less than the market value of the share sold, reflecting the provider's long-term investment until the property is sold.

Should You Consider a Home Reversion Plan Over Other Equity Release Options?

Considering a home reversion plan depends on your financial needs, property value, and preference for retaining partial ownership versus accruing debt.

Should You Consider a Home Reversion Plan?

Whether a home reversion plan is a good idea depends on your personal circumstances and financial goals. 

Consider the advantages and disadvantages and alternative options, and seek professional advice to determine if a home reversion plan aligns with your specific needs.

How Do Home Reversion Plans Compare to Other Equity Release Options?

You must consider home reversion plans vs. other options before making a final decision.

Here we highlight some of these alternative solutions and more...

What Is the Difference Between Home Reversion Plans and Lifetime Mortgages?

The key difference between a home reversion plan and a lifetime mortgage is property ownership.

Whilst you sell your property to your lender with a home reversion plan, you retain full ownership when you opt for a lifetime mortgage.

How Do Sale-And-Rent-Back Schemes Differ from Home Reversion Plans?

Sale-and-rent-back schemes are different from home reversion plans, as sale-and-rent-back schemes involve selling your property to a company and then renting it back from them.⁶ 

In this arrangement, you no longer own the property and become a tenant. 

If the new owner decides to sell the property, does not keep up with mortgage repayments, or fails to meet rental obligations, you could be evicted.

Take note:

Sale-and-rent-back schemes are regulated differently from home reversion plans and may carry their own set of risks and considerations. 

In contrast, you are not required to make any monthly payments with a home reversion plan as the provider will recoup the money once the plan comes to an end. 

Furthermore, you are guaranteed the right to live in your property for the rest of your life or until you move into long-term care, without the risk of being evicted.  

How Does Home Reversion Differ From Other Equity Release Schemes?

Equity release is an umbrella term that encompasses financial products designed to help homeowners access the equity tied up in their property. 

A home reversion plan is one form of equity release, with the other being a lifetime mortgage. 

How Do Home Reversion Plans Stand in Terms of Safety and Risk?

In terms of safety, these plans are regulated, with the risk mainly lying in the permanent sale of property equity below market value.

How Safe Are Home Reversion Plans for Property Owners?

Home reversion plans are safe as they are regulated in the UK by the Financial Conduct Authority (FCA)³ to ensure consumer protection. 

They were first regulated on 6 April 2007.⁴

Companies must adhere to strict guidelines and provide clear and transparent information to potential customers. 

As importantly:

You must always opt for a company that is a member of the Equity Release Council⁵ to ensure you are protected throughout the home reversion process and safeguarded by additional industry standards.

What Are the Risks Associated With Home Reversion Plans?

Home reversion plans, like any financial product, come with certain safety and risk factors, so consider these before committing:

• Financial security: Selling a share of your property means that you are reducing the value of your estate and the inheritance for your beneficiaries. Carefully evaluate your financial needs and discuss them with your loved ones.
• Housing market fluctuations: You will not benefit from the full market value of your property.
• Long-term commitment: Once you enter into a home reversion plan, it can be challenging to alter the arrangement. Consider your long-term plans and whether the lack of flexibility aligns with your future goals.

How Can You Get Started with a Home Reversion Plan?

Starting with a home reversion plan involves seeking advice from an equity release adviser, evaluating your property’s eligibility, and comparing offers.

Are There Any Success Stories or Testimonials from Customers Who Have Chosen Home Reversion Plans?

Yes, many customers have shared positive experiences with home reversion plans.

For instance, some have used the funds to enhance their retirement, affording luxuries like travel or home improvements that were otherwise out of reach.

Others have appreciated the peace of mind that comes from settling debts or financially assisting family members.

These stories highlight the plan's potential to provide financial freedom and security in later life.

How Can You Obtain a Quote for a Home Reversion Plan?

To obtain a home reversion quote, it is advisable to consult with a reputable equity release provider or an independent financial advisor or broker who specialises in equity release. 

They will assess your individual circumstances and provide you with a personalised quote based on factors such as your age, property value, and the percentage you are considering selling. 

They will also explain the terms and conditions associated with the home reversion plan, so you have a clear understanding of the financial implications.

Frequently Asked Questions on Home Reversion Plans

Final Thoughts on Considering Home Reversion Plans

Home reversion schemes can offer a viable solution for homeowners looking to access the value tied up in their property during retirement. 

By carefully considering the advantages and disadvantages and seeking professional advice, you can make an informed decision about whether it is suitable for your individual circumstances. 

Remember to compare different providers and carefully review the terms and conditions before committing to any home reversion plan.