I think you’ll agree with me when I say…
Trying to wrap your mind around home reversion plans can be challenging, especially when you don’t have the right information.
Well, you need not worry.
Here is a comprehensive and straightforward guide that will not only offer you step by step details on how a home reversion plan works but will also make you an equity release plan guru.
What’s a Home Reversion Plan?
If you want to release equity from your property but are worried about the accumulating interest and the bequeathment you will leave your family, there’s no need to sound the alarm since you can always take out a home reversion scheme.
A home reversion plan is a form of equity release scheme where part or all your property is sold to your plan provider, in exchange for a tax-free lump sum, or regular disbursements.
After that, a lifetime tenancy is fashioned, safeguarding your residency and freedom to live on your estate rent-free for the rest of your life.
How Does A Home Reversion Plan 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.
It’s important to note that lifetime mortgages are popular and probably one of the best options, but for those wishing to protect their inheritance, a home reversion scheme is still the most secure options.
Taking out a home reversion plan means that you receive a prearranged amount of capital to spend as you wish, in return for selling a part (or all) of your estate to your plan provider. The lump sum acknowledged is discounted since you have a right to stay on your property as long as you want.
You’re also not charged any interest, and the percentage given remains fixed until the end of the plan term. When the last homeowner passes away or goes into permanent care, the lender then sells a proportion (or all) the property, based on your plan, and splits the proceeds by the percentages initially agreed. The capital left is then shared amongst the proprietor’s beneficiaries as an inheritance.
Pros and Cons of a Home Reversion Scheme
|The equity you release will be tax-free cash, and you can decide to spend it on whatever you wish||Your heirs will receive a reduced amount of inheritance, which will not include your home|
|You may stay in your home until you die or move into long-term care, despite not technically owning it||You will get a lesser amount than the full market value of your estate|
|You will benefit on your share of ownership from any upsurges in the value of your home over time||You will no longer own 100 per cent of your property|
|You will not be obliged to pay any interest because this type of scheme is not a loan||A home reversion scheme can affect your entitlement to means-tested benefits|
|You will not have to move home, downsize or relocate, thus savouring your ties with your family||Amalgamating debts over a more extended period may mean you pay more overall|
|You may ring-fence a portion of your estate for inheritance||The plan is irreversible|
|Typically, the older you are, the higher the percentage you will receive of your estate’s market value|
|You will be able to raise a more considerable sum of money with a home reversion as compared to a lifetime mortgage plan|
Who Are the Home Reversion Plan Providers?
Due to the decline in popularity of home reversion schemes to lifetime mortgages, there are presently only two companies that offer these plans: Bridgewater and Crown.
#01. Bridgewater Equity Release
Bridgewater offers a free consultation & advice. It provides you with the ‘flexible release plans.’
They are certified members of the ERC (Equity Release Council), and they strictly heed to the ERC Code of Conduct. Moreover, it’s a subsidiary of Grainger PLC, which is one of the most recognised specialists of residential property in the UK. It only provides plans in England, Wales, and Scotland.
For Scottish residents, certain conditions may change or apply: changes that may not necessarily apply to the English and Welsh, residents.
Bridgewater’s home reversion plan needs you to be 65 years of age, and it’s considered a flexible release plan with a starting lump sum of £50,000.
The equity in your estate can be approximately £150,000 for a starting flexible release plan. It, sometimes, also tends to offer up to 60% of the home in a home reversion plan based on the property value and age of the individual.
Moreover, since it offers the flexible release plan, it provides an option of adding more funds at a later date based on the age of the youngest homeowner.
Bridgewater also adheres to the no negative equity clause, thus making sure that when your estate is sold, it will be the only asset for the lender to recoup their return on investment. No other assets can be seized.
#02. Crown Equity Release
Just like Bridgewater, Crown offers a free consultation & advice. It’s, however, not the most prominent of the certified home reversion providers, but by no means should it be discounted.
It’s part of the Equity Release Council membership, abiding by all Code of Conduct standards. It also strictly maintains the proper guidelines set out by the Financial Conduct Authority.
Crown also offers you, a flexible retirement plan, in the form of an equity release product with up to 60.04% of the property provided to homeowners who are 65 years of age or older.
If you need a minimum lump sum, it also makes it possible for you to obtain £50,000 for an approximate value of total estate equity at £150,000.
Crown will provide home reversion to a minimum property value of £80,000 and a maximum property value of £1 million.
Your property should be south and east of the line between Bristol and Walsh, as well as Birmingham postcodes. Other areas can apply for standard rates.
How to Calculate the Value of a Home Reversion Plan
Various factors determine the amount of capital you will receive from a home reversion scheme, and these include:
- The age of the youngest homeowner, which, according to the FHA requirements, is 60.
- The value of your estate and the regulations state that the minimum property valuation must be £80,000
- The percentage of the property sold, which is anywhere up to 100% of the value.
- Your health and lifestyle choices; severe or alarming health conditions can increase the regular lump sum available
Based on life expectancy, the older you are, the more tax-free capital you will have access to, the reason being that the scheme provider is likely to receive their share of the estate proceeds sooner.
What Will It Cost to Take Out A Home Reversion Plan?
Like other financial plans, with the home reversion scheme you might have to pay:
- for the regular maintenance of your estate
- an arrangement fee to the lender for the product
- an advisor’s fee and their assistance in setting up the scheme
- valuation fees – it will govern how much you sell your home for, so ensure you pay for an independent valuation and do not accept any valuation suggestions by the reversion company
- legal fees – ensure that you pay for independent guidance; have the terms of the lease scrutinised by a trusted solicitor, and not by the reversion provider
Common Home Reversion FAQs
Q: Can One Still Move House After Taking Out A Home Reversion Plan?
A: Yes, you can still move house after taking out a home reversion. However, the estate must be eligible, meaning it must be of similar value and an acceptable construction type for the provider to approve the relocation/move.
Q: What Are the Alternatives to Home Reversion Schemes?
A: Before taking out a home reversion scheme, it’s wise to consider other alternatives: primarily lifetime mortgages and retirement mortgages:
Lifetime mortgages are loans secured against one’s property, and you repay them following the eventual sale of the property when the last remaining proprietor either moves into long term care or dies.
There are various versions of lifetime mortgages.
Lump sum lifetime mortgages offer you a lump sum payment, and you repay the loan when your estate is sold.
Drawdown lifetime mortgages, on the other hand, allow for a lump sum cash payment with remaining capital deposited in a cash reserve that you can easily withdraw from if needed.
A voluntary repayment lifetime mortgage lets you make payments against your lifetime mortgage if you opt to do so.
Retirement mortgages are loans secured against an estate either shortly before you enter retirement or in the course of your retirement. Their lending criterion has become more stringent in the last few years, especially for proprietors over the age of 65.
You can choose the duration of your retirement mortgage, and it can be either for your lifetime or a fixed number of years.
You also have to make payments against the retirement mortgage. The frequency, duration, and amount of those payments are outlined in the mortgage deed.
Q: Can One Repay A Home Reversion Plan?
A: Yes, you can repay a home reversion scheme.
Unfortunately, though, if you want to purchase the percentage you had previously sold, you will have to do so at the current market value rather than the initial price value. That can be either good or bad, depending on the property market value at the time you want to repurchase the percentage.
However, most commonly, most homeowners opt to repay the plan when the home is sold.
Making a financial decision can be one of the most challenging choices you will ever make in your life. So be sure to consult your financial advisor or a trusted provider before rushing to take out an equity release plan.
If you need more information on home reversion plans though, be sure to see how much equity you can release and chat with an expert for free.
Thinking of alternative solutions? Try our free equity release calculator.