Home reversion plans

If you want to release equity from your property but are concerned about accruing interest and the inheritance you will leave, you may want to consider a home reversion plan.

A home reversion plan is a type of equity release scheme where part, or all the homeowners’ property, is sold to the plan provider in exchange for a tax-free lump sum, or regular payments. A lifetime tenancy is then created, protecting the homeowners’ residency and freedom to live in their home rent-free for the rest of their life.

How does a home reversion scheme work?

Home reversion schemes are the forerunner to all of today’s lifetime mortgages. However, over recent years the popularity of home reversion plans has declined as newer and more flexible lifetime mortgages have been developed. That said, the features that once made home reversion plans a secure choice for those wishing to protect their inheritance are still available today.

A home reversion scheme means that the homeowner receives a pre-determined amount of capital to spend as they wish, in return for selling a proportion (or all) of their property to the lender. The lump sum received is discounted because the homeowner has the right to stay in their property for life.

There is no interest charged and the percentage sold remains fixed until the end of the home reversion plan term. At that point, which is when the last homeowner has died or gone into permanent care, the house will be sold with proceeds being split in accordance with the percentages originally agreed with the lender. Any money left will then be shared amongst the homeowner’s beneficiaries as an inheritance.

What are the advantages and disadvantages of home reversion plans?

Home reversion plan advantages

• You will be allowed to stay in your own home for the rest of your life, or until you move into long-term care.
• You benefit on your share of ownership from any increases in the value of your property over time.
• There is no interest to pay with a home reversion plan because this type of scheme is not a loan.
• There is no need to move home, downsize or relocate.
• The equity release on your main property is tax-free.
• You can ring-fence a portion of your property for inheritance.

Home reversion plan disadvantages

• You will no longer own 100 per cent of your home.
• You won’t receive the full market value for your property.
• You won’t be able to leave your entire property to your beneficiaries and, thus, their inheritance will be reduced.
• Home reversion could affect your entitlement to means-tested benefits.

How is a home reversion calculated?

Factors which influence the amount of capital a home reversion company will lend is determined by:

• Age of the youngest homeowner; the minimum age is 60 to qualify.
• Valuation of the property; minimum property value must be £80,000.
• Percentage of the property sold; anywhere up to 100% of the value can be transferred.
• Health and lifestyle of the owners; poor health can increase the standard lump sum available.

Based on life expectancy, the older the homeowner is, the more tax-free cash they will have access to. The reason being the home reversion provider is likely to receive their share of the property proceeds sooner.

Want an indication of how much you could release using a home reversion scheme? Try our free home reversion calculator below.

These are Home reversion plans which allow you to sell part, or all your property in exchange for a cash lump sum. To understand their features, benefits and risks, please contact Equity Release Supermarket for a personalised, key facts illustration. All quotes can be tailored to your own circumstances and you are under no obligation to proceed.