A home reversion plan is a type of equity release scheme where part, or all of the homeowners property is sold in exchange for a tax-free lump sum, or regular payments. A lifetime tenancy is then created protecting the homeowners residency, in which they can live rent free for life.Home reversion schemes are the forerunner to all today’s equity release mortgages. However, over recent years the popularity of home reversion plans has declined as newer and more flexible lifetime mortgages have been developed. However, the features that once made home reversion plans a secure choice for those wishing to protect their inheritance are still available today…
Home Reversion Plans ExplainedWhen choosing which equity release scheme is best suited, there are many overriding factors to consider. For some it is the amount of inheritance they wish to leave to their beneficiaries; if so the home reversion scheme offers such guarantees. Attitudes towards the heirs to any estate is an always one of the most important questions that any local equity release adviser must ascertain to be in a position to provide best advice.
By selling a percentage in your property, you are co-owning your home with the reversion provider. You are still responsible for the upkeep and maintenance of the property for which you retain the right to life there until the last person has vacated the dwelling. This legal right is exercised by a lifetime tenancy agreement which is drafted at the time of application of the plan. Security of tenure is therefore guaranteed for life.
Once co-ownership has been established, the homeowner receives a pre-determined amount of capital to spend as they wish. This lump sum, compared to the equity exchanged will be heavily discounted by the reversion company due to the fact the homeowner lives there for life. There is NO interest charged and the percentage sold remains fixed until the end of the plan term. At that point, which is when the last homeowner has died or gone into care, the house will be sold with proceeds being split in accordance with the percentages originally agreed.
What is the Maximum Home Reversion Calculation?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 65 to qualify
- Valuation of the property – minimum property value must be £80,000
- Percentage of the property sold – anywhere upto 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 larger the tax-free cash they will receive. The reason being the home reversion provider is likely receive their share of the property proceeds sooner. Therefore, they can offer a greater amount for the same fixed percentage than someone who is younger.
To calculate how much a home reversion plan could release for you try our FREE home reversion calculator.
Which Companies Provide Home Reversion Plans?At the time of writing, only Bridgewater and Crown offer any form of home reversion. The advantages that home reversions previously held have now been usurped by the lifetime mortgage. These advantages tended to be that home reversions would offer a larger lump sums and a guaranteed inheritance for the beneficiaries. These were both important factors that previously favoured home reversion plans, but the market has now changed.
Why Home Reversions Have Declined at the Expense of Lifetime MortgagesThe major factor is ‘flexibility’. Lifetime mortgages now offer higher maximum loans than home reversions based on their loan-to-values. Additionally, reversions can also now provide inheritance protection features which guarantee a percentage of the eventual sale value. Finally, with lifetime mortgages you retain 100% of the property value and therefore 100% of the future property house price growth which has resulted in the virtual extinction of the home reversion plan.
The are home reversion plans. To understand their features and risks ask for a personalised illustration.