What's a Home Reversion Plan? (Jan 2022)

What Are Home Reversion Schemes & How Do They Work?

Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui

Planning For the Future? Home Reversion Plans are Popular and a Great Fit for Many People. We Explain How It Works and Why It May Be a Good Option For You

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What’s a Home Reversion Plan?

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 a home reversion scheme is.
  • How these equity release plans work in Jan 2022.
  • The benefits and disadvantages of a home reversion scheme.
  • The secret to discovering if this form of equity release is suitable for you.

Here at SovereignBoss, we are experts in all things equity release, including home reversion schemes. We’re continuously staying up-to-date with the market, to bring you the latest equity release news and 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

What is a Home Reversion Plan?

A home reversion plan is one of the 2 main types of equity release available in Jan 2022 designed for people over the age of 60. It allows you to unlock tax-free cash by selling all or a part of your home. Furthermore, you’re permitted to stay put, rent-free, for the rest of your life or until you’re admitted into long-term care.

Discover: 2 Main Types of Equity Release

How Does a Home Reversion Plans Work?

A home reversion plan involves selling all or part of your house in exchange for a lump sum of money, regular income, or both. When your property is sold, the company gets its cut of the profits. So if you sell everything to the firm, it will get everything.

Pros and Cons of a Home Reversion Scheme

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

With a home reversion plan, You can unlock 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, your property value, and at times, the condition of your health.

Take note!

In some cases, 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, Drawdown, or Both?

Whether you opt for a lump sum, drawdown, or both with a home reversion scheme depends on why you want to unlock equity from your home. A financial adviser will help you determine which option is best for you.

Here’s more information:

  • With a lump sum, you get to be the master of your own money. However, this option involves careful management to ensure you’ve got enough to get by for the rest of your life. That said, if you’re looking to go on a dream holiday, purchase a big-ticket item, or carry out expensive home renovations, a lump sum might be the perfect choice for you.
  • Alternatively, with a regular income, you can receive a tax-free salary for the rest of your life.
  • Luckily, it is possible 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.

What Are the Pros & Cons of a Home Reversion?

The main pro of the home reversion scheme is that you get to remain in your home, rent-free, for the rest of your life. The main con of a home reversion scheme is that you will significantly reduce your inheritance.

DISCOVER NOW: Is Equity Release Safe?

What are the Advantages of a Home Reversion Scheme?

The biggest advantages of a home reversion scheme are that you can remain in your home rent-free, you receive tax-free cash, and there are no repayments.

Here’s further information:

  • Tax-free cash – You can unlock money to pay for your retirement living expenses.
  • Stay at home – You’ll have the opportunity to remain in your home until you pass away or move into permanent care.
  • Stress-free – You never have to experience the stressful process of moving to a new home.
  • Less Inheritance Tax – You may benefit from a lower inheritance tax liability.
  • Keep a portion – You have the opportunity to retain ownership of some of your home, so that you can leave something to your beneficiaries.
  • Top care – Should you need to, you can use the cash you unlock to fund the best care for your retirement.
  • No compulsory repayments – You won’t need to make any monthly repayments.
  • Flexibility – You can move to a new home if you wish to, as long as the new house is approved by your home reversion mortgage lender.
  • Grow your portfolio – You can still benefit from rising housing prices if you retain ownership of a portion of your estate.
  • Protected from market crash – On the flipside, if you’ve sold your home through a home reversion 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 article: The Benefits of a Home Reversion Plan

What Are the Disadvantages of a Home Reversion Scheme?

The main disadvantages of a home reversion scheme are that you won’t get the full value of your estate, your benefits might be impacted, and your inheritance will be impacted.

In detail:

  • Impacted benefits – Unlocking equity through a home reversion scheme could affect your entitlement to state benefits, or support from your local council. The cash you raise through equity release is likely to affect your income and capital assessment.
  • Lower inheritance – You’ll be selling your home to a lender, therefore drastically reducing the inheritance of your heirs.
  • Less value – You’ll receive considerably less than the total market value of your estate.
  • Selling off – With a home reversion scheme, you’ll no longer be the sole owner of your property.
  • Loss if you end your plan – If you end the plan early, you’ll need to buy back your portion at market value. This will be far less than what you originally sold it for.
  • Lose out if you die – A home reversion scheme could be terrible value if you die soon after unlocking the cash.
  • Fees involved – All equity release plans, including a home reversion plan, usually come with arrangement, valuation, and legal fees that will need to be covered.
  • Building insurance – The lender requires you to have buildings insurance for your property.
  • Home maintenance – You’ll be required to keep your home in mint condition, so you’ll need to set aside some money for repairs and maintenance.
  • Inflexible – Home reversion schemes can be inflexible when it comes to moving home. Not all properties qualify. Furthermore, you’ll usually need the provider’s permission for someone else, such as a relative, carer, or new partner, to move in.

In Conclusion

A home reversion scheme could be the key to staying in your home, even if you need money from the sale of the property. Just remember that you won’t receive the full value of the portion you unlock.

Whatever you decide, you must first consult an independent financial adviser and discuss the impact of equity release with your family.

If you’re still wondering if a home reversion scheme is suitable for you, you might want to consider the alternatives to equity release.

Thinking of releasing equity? Try our UK equity release calculator now!

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss 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.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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