What’s a Home Reversion Plan? (2022)
Have you heard about home reversion schemes? 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.
What You’ll Learn in This Article:
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?
Let’s find out now!
What is a Home Reversion Plan?
A home reversion plan is one of the 2 main types of equity release available in Aug 2022 designed for people over the age of 60 or 65.
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.
How Does a Home Reversion Plans Work?
A home reversion plan works by your selling all or part of your house in exchange for a lump sum of money.
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.
Your financial adviser will support you throughout the process, assisting you with the various equity release jargon you’ll need to know.
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.
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.
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What Are the Pros & Cons of a Home Reversion?
The pros of the home reversion scheme is that you get to remain in your home, rent-free, for the rest of your life.
The cons of a home reversion scheme is that you will significantly reduce your inheritance.
Take a look at these to answer the question, is equity release a good idea?
What are the Advantages of a Home Reversion Scheme?
The advantages of a home reversion scheme include that that you can remain in your home rent-free, receive tax-free cash, and have no repayments.
Further home reversion benefits include:
- 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 unless you want to.
- 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.
What Are the Disadvantages of a Home Reversion Scheme?
The 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.
- 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.
What's the Difference Between Equity Release and Home Reversion?
The home reversion plan is an equity release product. The mortgage plan enables homeowners aged 60+ to unlock the value of their estate by selling a part or all of their property to the equity release provider. You then repay the amount released when you die or move into residential care.
The only difference between the home reversion scheme and the lifetime mortgage plan, an equity release product, is that you don’t pay any interest since you give ownership of part or all of your home to the lender in exchange for a lump sum or monthly income.
Are Home Reversion Plans Regulated?
Yes, they are. These are equity release mortgages, and every equity release product is regulated by the Financial Conduct Authority (FCA) and governed by the Equity Release Council (ERC).
Therefore, all home reversion providers must be members of the ERC to offer equity release plans, including the home reversion plan to consumers.
What's Reversion Rate?
The reversion rate is the rate to which your mortgage plan will revert at the end of any incentive or fixed period. For instance, you might have a 3-year fixed-rate mortgage of 5.8%.
At the end of the three years, the mortgage rate might change to 6.4%. Therefore the reversion rate would then be 6.4%.
What's A Home Income Plan?
This is when you release equity from a home reversion plan or lifetime mortgage scheme. The funds are then invested into an annuity that’s built into the mortgage scheme to generate an income for life. An annuity is a plan that assures you that you’ll get a series of payments in exchange for a capital lump sum.
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.
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