Everything You Need to Know About Home Reversion Plans

Home reversion plans can be a complex and often misunderstood topic, but they're actually a type of equity release that can provide a lump sum payment in exchange for a percentage of your home's value.

You can use the money from a home reversion plan to pay off debts, fund home improvements, or cover living expenses. This can be a great way to free up some cash and enjoy your retirement without worrying about money.

A home reversion plan typically involves selling a percentage of your home to a provider, usually in exchange for a lump sum payment. The amount you receive will depend on your age, the value of your home, and the percentage of equity you're willing to sell.

For example, if your home is worth £200,000 and you sell 25% of the equity to a provider, you'll receive £50,000 and retain 75% of the property's value.

One of the biggest benefits of a home reversion plan is that you can release money from your property without moving to a new house. This means you can stay in a familiar area and home while benefiting from some of the value locked away in your home.

You'll be allowed to stay in your own home for the rest of your life, or until you move into long-term care. This is a huge advantage, especially for those who love their home and want to stay.

There's no interest to pay with a home reversion plan because this type of scheme is not a loan. This means you won't have to worry about accumulating debt.

The equity release on your main property is tax-free. This is a significant benefit, as it means you won't have to pay taxes on the money you receive.

You can ring-fence a portion of your property for inheritance, providing you don't sell 100% of your home. This is a great way to protect a portion of your property for your loved ones.

Here are some of the key benefits of a home reversion plan:

You can benefit from any increases in the value of your property on any unsold percentage. This means that if the value of your home increases over time, you'll benefit from that increase, even if you've sold a portion of your home.

Releasing equity from your home is tax-free. This is a significant benefit, as it means you won't have to pay taxes on the money you receive.

You'll no longer own 100% of your home. This is a significant drawback of home reversion plans, as you'll be giving up a portion of your property to the provider.

Selling your home at a discounted rate means you'll receive less money than its full market value. This is a crucial consideration, as you'll be giving up a potential windfall for your family in the future.

You won't be able to leave your entire property to your beneficiaries, which can reduce their inheritance. This is a sad reality, but one that you should be aware of before signing up for a home reversion plan.

Some home reversion schemes charge rent for you to continue living in your home. This can be a significant expense, and one that you should factor into your decision.

You may need to pay to cancel a home reversion plan early, as you'll need to buy back your property at full market value. This can be a costly mistake, so it's essential to carefully consider your options before committing.

Here are some of the key risks to be aware of:

A home reversion plan allows you to sell a percentage of your property to a provider, who will make an offer below market value.

You'll receive a tax-free lump sum, regular income payments, or a mix of both, and the entire property will be leased to you rent-free for life. The home reversion provider will receive their agreed share of the final sale price when the property is sold.

You'll still be responsible for maintenance costs, utility bills, and council tax, and there may be additional fees to pay when setting up the plan.

Here are some costs you could incur:

Home reversion plans can be a complex concept, but let's break it down simply. Home reversion providers will make an offer to purchase a percentage of your property, typically below market value.

The price they offer will be substantially below market value, so you're paying a lot for the convenience of not having to move. You'll need to consider how much money you'd like to raise and weigh that against the percentage of your home you're willing to sell.

You can expect to receive a lump sum, regular income, or a combination of both, all of which will be tax-free. The amount you receive will depend on various factors, including your age, health, and the current market value of your property.

Home reversion plans are regulated by the Financial Conduct Authority (FCA) in the UK, which provides oversight to ensure that plans are fair and transparent. This means you can have some confidence in the process.

You'll typically have to sign a tenancy agreement and can continue to stay in your home until you die or move into long-term care. The property will then be sold, and the provider will keep the proceeds, or the portion it's entitled to if you only sold a share.

The percentage sold remains fixed until the end of the home reversion plan term, at which point the house will be sold, and the proceeds will be split according to the percentages originally agreed with the lender. Any money left will then be shared amongst your beneficiaries as an inheritance.

Setting up a home reversion plan can come with additional costs that you should be aware of.

You'll still be responsible for maintenance costs, utility bills, and council tax, on top of any arrangement or valuation fees, as well as legal costs if you employ a solicitor.

These costs can add up, so it's a good idea to have a pot of money set aside for any repairs or ongoing maintenance.

Some of the specific costs you might incur include legal fees for a solicitor acting on your behalf, arrangement fees, valuation fees, and adviser fees.

Here are some of the costs you could be looking at:

It's essential to carefully review the terms and implications of the plan with your solicitor before signing on the dotted line.

To be eligible for a Home Reversion Plan, you'll need to meet certain requirements. The minimum age requirement is 55 years old, and the older you are, the more money you can typically release.

You'll also need to be an existing homeowner who has paid off most of their mortgage. This is a crucial factor in determining your eligibility.

The amount of money you can release is dependent on your age, health, and the value of your property. This means that the older you are and the more valuable your property is, the more money you'll be able to release.

Here are the key eligibility requirements:

If you're considering a home reversion plan, it's essential to explore other options. Before making a decision, seek guidance from a mortgage broker or financial adviser.

They can help you understand the benefits and downsides of home reversion plans and suggest alternatives that may be more suitable for your needs. A retirement interest-only mortgage and remortgaging are two alternatives to consider.

Secured loans and pension drawdown are also viable options. However, it's worth noting that the most direct alternative to a home reversion plan is a lifetime mortgage.

Here are some alternatives to home reversion plans:

A lifetime mortgage is the most direct alternative to a home reversion plan.

If you're considering a home reversion plan but want to explore other options, you're not alone. There are several alternatives to home reversion plans that you can consider.

A retirement interest-only mortgage is one option, which allows you to release equity from your home while still maintaining ownership. Remortgaging is another possibility, if you already have a mortgage on your property.

Downsizing is also an option, which can free up a significant amount of equity in your home. Secured loans are another alternative, but be aware that they often come with higher interest rates.

Pension drawdown is a popular option for releasing equity from your home, but it's essential to weigh the pros and cons before making a decision.

Here are some alternatives to home reversion plans:

However, the most direct alternative to a home reversion plan is actually a lifetime mortgage.

To get the best deal on a home reversion plan, it's essential to seek guidance from a mortgage broker or financial adviser. They will help you make an informed choice by taking you through the benefits and downsides from your own perspective.

A mortgage broker or financial adviser can advise you on the best kind of equity release for you and find a product on the market most suited to your needs. They can also explore possible alternatives and other potential sources of income.