Should You Get a Home Reversion Plan? A Full Guide
Home reversion plans are something you might hear about when planning for retirement. So, what are they?
In simple terms, these plans allow you to sell a part or all of your home to a provider and live there rent-free until you move out or pass away.
Now, you might have heard some doubts or myths surrounding home reversion plans, but they are a legitimate financial option. They are regulated and might be just what you need to make your later years more comfortable.
For seniors, home reversion can be a significant part of financial planning. It can make your finances more manageable and allow you to enjoy your golden years without the stress of money issues.
If you’re keen on getting a home reversion plan, this article will explain everything you need to know – from how it works, to the pros and cons, and your alternatives to release equity.
What is Home Reversion?
As mentioned earlier, home reversion is a financial arrangement where you sell a portion or all of your home to a provider, typically in return for a lump sum or regular payments.
Though the provider now owns the part of the home you’ve sold, you retain the right to live in it rent-free for the rest of your life.
This allows you to benefit from the value of your home without having to move. But it does mean you’ll no longer fully own the property. It’s a way to access funds tied up in your home, while still having a place to live.
How Does Home Reversion Work?
Home reversion might seem complex, but it can be broken down into simple steps. Here’s how you can understand it:
- Choose a Plan – You pick either a full or partial home reversion plan with a provider.
- Value Your Home – A valuation is done to determine your home’s worth.
- Agree on Terms Below Market Value – You and the provider agree on the percentage to sell and the amount you’ll receive, typically below market value.
- Receive Payment – You receive a lump sum or regular payments, tax-free, with no interest payable.
- Live Rent-Free with Lifetime Tenure – You can stay in your home for life without paying rent, or until you move into permanent care.
Full Reversion Example
If your home is worth £200,000, and you opt for a full reversion, you sell 100% of your home and get a lump sum, e.g., £100,000.
Upon your passing or moving to long-term care, the home may be sold, and the provider recovers the sale profits. Your beneficiaries will no longer have a legal claim to the property.
Partial Reversion Example
If you sell only 50% of your home, worth £200,000, you might receive £50,000.
But if the property is sold for £400,000 when you pass away, the provider will get 50% of the sale price, while your beneficiaries will receive the balance due to your estate.
Who is Eligible for Home Reversion Plan?
General Eligibility Criteria
Wondering if you qualify for a home reversion plan? Here’s what you’ll typically need to look at:
- You should be over 65 years old.
- Your home should be worth £80,000 or more.
- A maximum of two people can be listed on the title deed of your property.
- Some providers may limit their services to specific areas within England, excluding places like The Channel Islands and The Isle of Man.
Special Considerations
Some circumstances may require special attention:
- If you’re younger than 65, other options might be more suitable, such as lifetime mortgages or other loan types.
- Having health issues might enable you to access a larger portion of your home’s value.
- Some providers might not accept non-standard properties.
If your situation doesn’t fit neatly into these criteria, a good specialist broker could help find a solution for you.
You can take time to fill out this quick form, and we’ll arrange for a specialist to contact you directly, for free, no obligation attached.
The Pros and Cons of a Home Reversion Plan
Home reversion plans aren’t just about selling your home. They come with several benefits and drawbacks that you should consider:
Pros:
– Guaranteeing an Inheritance. You can protect a percentage of your property’s value for your heirs.
– Tax-Free Lump Sum. The money you receive is tax-free.
– No Monthly Repayments. There are no ongoing repayments to worry about.
– Flexibility to Move. You can still move home under certain conditions.
– Protection Against Falling Prices. If the property value falls, it’s the provider’s risk, not yours.
– Inheritance Tax Planning. It can be a tool for managing your inheritance tax liabilities.
Cons:
– Possible Expenses in Reversing. If you change your mind, there may be costs to reverse the process. You’ll need to buy back the share at current market prices, possibly paying significantly more than when you sold it.
– Family Inheritance Concerns. Selling part or all of your home may affect what you leave for family members.
– Missing Future House Price Increases. You’ll miss out on future price increases on the part you’ve sold, especially since it was sold below market value.
– Reduced Inheritance. The money you receive may be lower than what your property could fetch in the future. If you sell 100% of your property, your beneficiaries will be left with nothing to inherit.
– Loss of Ownership. You’ll no longer own part or all of your home.
– Age Restrictions. Home reversion plans have age limits, usually starting from 65.
Alternatives to Home Reversion Plans
Home reversion plans aren’t the sole way to tap into your property wealth. Here are diverse options you might consider:
- Lifetime Mortgages. Unlike home reversion, lifetime mortgages don’t require you to sell your property. You can borrow against your home’s value and keep ownership. The loan is repaid once the property is sold after you die or move into long-term care. Find out how much you could borrow using our equity release calculator below.
[Equity release calculator]
- Retirement Interest Only Mortgages. Specifically designed for retirees, these mortgages only require you to repay the interest. The capital is paid when your property is sold, typically after you’ve passed away or moved into long-term care.
- Downsizing. If a smaller place suits you, selling your current home for a less expensive one can free up cash.
- Remortgaging. You may increase your borrowing with your current lender or find a new one, subject to an affordability assessment.
- Renting Out Your Property. This option lets you retain ownership while renting somewhere cheaper, using your property to cover living costs.
- Taking Out a Loan. A personal or secured loan could solve short-term cash flow problems.
These alternatives provide various benefits to meet different financial needs. Whether retaining ownership or seeking short-term solutions, you have choices beyond home reversion plans.
Key Takeaways
- You must be over 65 years old, and the property value must be £80,000 or more.
- You can sell part or all of your home to a provider while retaining the right to live in it rent-free.
- Consider the potential impact on family inheritance and weigh other alternatives such as lifetime mortgages or downsizing.
- Home reversion plans are regulated by the Financial Conduct Authority (FCA) in the UK, offering assurance for those considering this option.
The Bottom Line: Speak with an Equity Release Advisor
Home reversion schemes offer an attractive solution for those over 65 to capitalise on their property without having to move.
The plan’s ability to provide a tax-free lump sum or regular payments, along with lifelong tenure, can add substantial ease to retirement living.
But it’s essential to understand the process, the eligibility criteria, and the possible impact on family inheritance.
With a home reversion plan, you can sell part or all of your home while living in it rent-free. This could provide the financial flexibility you’ve been seeking in retirement.
But, it’s essential to understand that your situation is unique. And professional guidance can make a difference.
A specialist equity release broker can provide tailored guidance, clarifying the pros, cons, and eligibility criteria tailored to your unique situation. They’ll help you navigate this significant decision without pressure.
If you’re ready to explore your options, simply fill out this quick form, and we’ll match you with an experienced mortgage broker.
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Frequently Asked Questions
Are home reversion plans regulated?
Yes, they are regulated by the Financial Conduct Authority (FCA) in the UK. Moreover, providers may choose to join the Equity Release Council, a group that establishes guidelines and safeguards those who use equity release services.
How much money will I owe the provider when the plan finishes?
You won’t owe any money. When the property is sold, the provider will take their agreed share, and you or your estate will receive the rest.
How much money can I borrow via a home reversion plan?
The amount depends on your age and the value of your property. It can vary significantly between providers.
Is it possible to leave an inheritance with a home reversion plan?
Yes, particularly if you opt for a partial reversion plan, allowing you to sell only a fraction of your property’s value.
How does equity release differ from home reversion?
Equity release includes home reversion and lifetime mortgages. Home reversion involves selling part or all of your home, whereas lifetime mortgages are loans secured against your home.
What are the implications of entering into a home reversion on your income tax and eligibility for benefits?
Home reversion usually comes in the form of a tax-free lump sum, which doesn’t change your income tax stance. Yet, equity release could alter your entitlement to certain means-tested benefits, either immediately or later down the line.
What requirements must be met to continue residing in your home under a home reversion agreement?
As a rule, maintaining and insuring the property is a must. Individual conditions might differ among providers, so verifying with them is advisable.
Furthermore, most home reversion plans allow you to stay in your house without paying rent until you either pass away or enter full-time care. Your lending institution will likely require you to cover the costs of rates and any expenses related to maintenance.
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