Releasing equity from your property may help you enjoy more flexibility in retirement without the need for care homes or nursing facilities. With a home reversion plan being a type of equity release, it’s no difference in this case.
The benefits of a home reversion equity release plan are vast. These include covering medical costs, supplementing your retirement income, or funding a college education. Continue reading to find out what else.
What Makes a Home Reversion Scheme an Excellent Choice?
First of all, make sure that you understand: What’s a Home Reversion Scheme?
- The property is still there to be sold in case you need more money later.
- You might also find that the equity release provider will give more money back if there are major structural changes made to your houses, such as installing new windows or any other improvements which can be seen from outside the property (e.g., landscaping).
- Home reversion schemes are regulated by the Equity Release Council.
- Home reversion schemes only end when you pass away or move into permanent car, and no monthly repayments are required.
- It can also be useful in protecting against inflation and rising living costs. This means that as the cost of living increases, it won’t affect how much equity release you can access and what your borrowing rate will be.
- It could also provide a good way to fund new projects or investments that you may have wanted to take part in but were unable to because of financial constraints. Don’t overlook this factor as it can give the opportunity for you to be able to use your equity release for the best possible purposes.
- It will ensure that you are not facing stress about paying off a large amount of debt during this time. Therefore, it can work as a great way to ensure you don’t have any additional financial concerns weighing on your mind and preventing you from living the best life possible.
- Finally, many people who are struggling to maintain their mortgage repayments have discovered that it can be a really good option for them because it will allow them to avoid having to sell out their home or move out in order to find a new place to live.
3 Best Things About a Home Reversion Scheme
- No Monthly Payments
No monthly payments are necessary. The money is repaid when you pass away or move into permanent care.
- No Inheritance Tax
Another advantage is that beneficiaries don’t have to pay inheritance tax1 on the equity released from their home – even if they sell it for a higher price than what was originally negotiated with their solicitor. As long as the higher price doesn’t exceed the value of £125,000 (this threshold may be different in Scotland).
- No Capital Repayment
A further advantage is that there are no capital repayments. This may seem insignificant to some, but the lack of repayment for an equity release scheme really does make all the difference when considering how much money you can spend in retirement or where your income comes from.
What are the Disadvantages of a Home Reversion Scheme?
There are some disadvantages to home reversion plans:
- It’s difficult to predict future interest rates and if they rise significantly then homeowners may find themselves worse off and having to pay more.
- There is no guarantee that all mortgage providers will support equity release schemes.
- This type of plan can’t meet everyone’s needs – such as those with self-build properties where there is no mortgage.
- If you invest in making home alterations but don’t properly document what changes were made, then you might not see the return on that investment. Homeowners might find that they get less money back at the time of sale due to depreciation of value.
It’s always important to know exactly what you’re signing up for when you elect to use a home reversion plan.
Home Reversion Companies
It’s important to choose a home reversion company that offers the best terms and conditions, as well as financial advice. It’s also wise for potential equity release beneficiaries to check any commissions or fees charged by the providers of these types of services before entering into an agreement with them.
The Equity Release Council regulates equity release plans in the UK. It’s not uncommon for those who are considering home reversion schemes to research and compare providers of these types of services before making a decision about which company they will choose.
If you need help with Choosing a Financial Adviser, we’ve got you covered. Send us an email.
What Is a Home Reversion Plan?
Home reversion plans make up 1% of the equity release market but their advantages and disadvantages should be considered very carefully. A home reversion plan is a form of equity release product that involves selling all or part of your home to a specialist provider.
What Are the Benefits of Home Reversion Plans?
Some of the benefits of a home reversion plan are:
- You can remain in your home for life
- The money you receive is tax-free
- You can retain a share of your home for inheritance purposes
Unfortunately, for most people the drawbacks of these plans will negate any advantages.
Can I Get More Money From My House With a Lifetime Mortgage or a Home Reversion Plan?
The amount of money you can expect to receive from a lifetime mortgage and home reversion plan will depend on your property, health and age.
Some home reversion plans will buy 100% of your home but for between 20% and 60% of the price.
A lifetime mortgage may give you up to 60% of the property’s value, but this will accrue interest if not paid back and could eat into your remaining equity.
Are There Limits on Who Can Buy a Home Reversion Plan?
As a general rule, you have to be:
- aged 65 and over
- a homeowner, and
- a UK resident.
In most cases your property must also be:
- in England, Scotland or Wales
- your main residence
- worth a minimum of £100,000, and
- made of standard construction.
Equity Release Home Reversion Plans are advantageous because they allow you to use the value in your home as collateral, which means that if for some reason you can’t make mortgage repayments on time then there will be no need to worry.
You must speak to your financial adviser, before making any concrete decisions.
Finally, you should also remember that this is not a form of social housing and the equity release will be repaid at some point in the future. It may affect your eligibility for certain benefits such as pensions or disability payments. Learn the equity release pitfalls, before making your final decision.