You don’t have to move out just because you’ve sold your home!
Sounds crazy? Well, it’s not. With a home reversion scheme, you’ll have the best of both worlds. This is a type of equity release mortgage that you should seriously consider.
We’re here to help you discover:
- What’s a home reversion scheme.
- How these equity release plans work.
- The benefits and disadvantages of a home reversion scheme.
- The secret to finding out if this form of equity release is suitable for you.
We at Sovereign Boss are experts in all things equity release, including one of the 2 most popular types, a home reversion scheme. We’re continuously keeping up-to-date with the market to bring you the latest deals.
So, could a home reversion scheme be the answer to solving your retirement financial needs? Find out now!
What’s a Home Reversion Plan?
One of the 2 main types of equity release is a home reversion scheme. It allows you to unlock equity by selling all or a part of your home in exchange for living there rent-free for the rest of your life or until you’re admitted into long-term care.
In addition, you’ll be selling your home below market value1.
How Do Home Reversion Plans Work?
Since 2010, lifetime mortgages have been the go-to equity release option for most retirees, because of their flexibility, as compared to the home reversion plan, which was popular around 2005.
Home reversion schemes are usually reserved for homeowners over the age of 65.
If you qualify, you can select to unlock the cash through a lump sum2, a monthly income, or a combination of both.
When you die or move into permanent care, your home is sold. The lender will then take their share of the sale, and if you’ve kept a portion, that will go to your beneficiaries.
How Much Cash Can You Unlock With a Home Reversion Scheme?
When unlocking cash through a home reversion scheme, you’ll only receive between 20% and 60% of the value of the portion of your property that you’ve sold. This percentage will be determined by your age and the condition of your health.
The older you get, the more equity you’ll qualify to unlock. Therefore, if you can, it’s best to delay taking out a home reversion scheme as long as possible. We suggest the age 70 to get the most out of your plan.
Your home reversion company is taking a risk and, therefore, needs to ensure that your home is an investment that will pay off.
Note that you could still be liable for other costs such as ground rent (or chief rent), the yearly sum payable on some freehold properties.
Lump-Sum, Income, or Both?
- With a lump sum, you get to be the master of your own money. However, it would mean careful management to ensure you’ve got enough to get you by for the rest of your life. However, if you’re looking to go on a dream holiday, purchase a big-ticket item, or do expensive home renovations, then a lump sum might be the perfect choice for you.
- With a regular income, you can receive a tax-free salary for the rest of your life.
- Luckily, you do have the option to get the best of both worlds. Be sure to chat with your financial adviser to see what they think would be the ideal option for you and your family3.
Weighing Up The Pros & Cons of Home Reversion Plans
Like all equity release mortgage plans, the home reversion scheme comes with its pros and cons. We strongly suggest that you weigh these up with your family, financial adviser, and lender to ensure you’re making the right decision.
11 Pros of a Home Reversion Scheme
- You’ll can get money to pay for your retirement living expenses.
- You’ll have the opportunity to remain home until you pass away or move into permanent care.
- You never have to experience the stressful process of moving to a new home.
- You get the opportunity to receive tax-free cash.
- There’s a chance for a lower inheritance tax liability.
- You have the opportunity to retain ownership of some of your home so that you can leave something to your beneficiaries.
- Should you need to, you can use the cash you unlock to fund the best care for your retirment.
- You won’t need to make any monthly repayment on the loan or interest.
- You can move home if you wish to, as long as the new house is approved by your home reversion mortgage lender.
- You can still benefit from rising housing prices if you retain ownership of a portion of the estate.
- On the flip side, if you’ve sold your home through a lifetime mortgage plan and property prices plummet, you’ll still be protected and have the opportunity to remain in your home for the rest of your life.
Check out this blog post: The Benefits of a Home Reversion Plan
10 Cons of a Home Reversion Scheme
- Unlocking equity through a home reversion scheme could affect your entitlement to state benefits, or support from your local municipality. The cash you raise through equity release is likely to affect your income and capital assessment.
- You’ll be selling your home to a lender, therefore drastically reducing the inheritance of your heirs.
- You’ll receive considerably less than the total market value of your estate.
- With a home reversion scheme, you’ll no longer be the sole owner of your property.
- While a home reversion scheme is intended for life, you never know where your life might take you. If you end the plan early, you’ll need to buy back your portion at market value. This is far less than what you originally sold it for.
- A home reversion scheme could be terrible value if you die soon after unlocking the cash.
- All equity release plans, including a lifetime mortgage, usually come with arrangement, valuation, and legal fees that will need to be covered.
- The lender requires you to have buildings insurance for your property.
- You’ll be required to keep your home in mint condition, so you’ll need to set aside some money for repairs and maintenance.
- Home reversion schemes can be inflexible when it comes to moving home. It’s not properties qualify. and you’ll usually need the provider’s permission for someone else, such as a relative, carer, or new partner, to move in.
A home reversion scheme could be the key to staying in your home, even if you need money from the sale.
Whatever you decide, you must first consult an independent financial adviser and discuss your options with your family.
If you’re still wondering if a home reversion scheme is suitable for you, you might want to check the equity release alternatives.
Thinking of releasing equity? Try our calculator now!