Home Reversion Schemes

An equity release arrangement can allow older homeowners to benefit from the wealth that’s built up in their property without downsizing, and a home reversion plan is one of the two core options available.

But what exactly is a home reversion plan? How is it different from other types of equity release, and could it be worth considering? This guide will tell you everything you need to know.

What is a home reversion plan?

In a nutshell, home reversion plans are usually available to anyone over the age of 65 and are a way to sell your home while continuing to live there.

You get a tax-free sum and essentially become a tenant, but on a rent-free basis – there are no repayments to make and no interest is charged, because the home reversion provider will get its money back when the property is eventually sold.

How does it work?

Under home reversion schemes you sell your property – either in its entirety or a portion of it – to a specialist provider at below market value, typically between 30% and 60% depending on your age and overall health (the older you are, the more you’ll normally be able to release). In return, you’ll get a cash lump sum, a regular income or a combination of the two, all of which will be tax-free.

You’ll normally have to sign a tenancy agreement but can continue to stay in your home thereafter, either until you die or move into long-term care (this applies to any joint applicant as well). 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.

Yet while it may sound simple enough, these plans are notoriously risky and aren’t routinely offered by equity release providers, which makes seeking professional advice a must before going down this route.

Is a home reversion plan a good idea?

The risks involved mean that home reversion won’t be for everyone. It does, of course, depend on individual circumstances but for the majority of homeowners, the alternatives may be more appropriate, which is why it’s vital to weigh up the options carefully.

What are the risks?

Home reversion schemes are considered high-risk products that can affect your inheritance plans, your tax status and even the benefits you’re entitled to. With all this in mind it’s crucial you understand the impact on your long-term finances before taking the plunge.

Some of the risks to be aware of include:

• You’ll be selling your home at a discounted rate, so although you’ll be able to release some of the equity, you’re doing so for a lower return overall
• You won’t benefit from future house price rises
• You won’t be able to leave your property as an inheritance, as even if you only sell a portion to the reversion company, it will need to be sold on your death
• If you take a regular income, there’s the risk that if you die shortly after you won’t have benefited much from it, and neither will your beneficiaries
• Any funds you receive can impact your means-tested benefit entitlement
• If you change your mind at a later date, it can be expensive to reverse, as you’ll need to buy back the property (or share) at full market value

Are home reversion plans regulated?

Yes they’re fully regulated by the Financial Conduct Authority (FCA), which means firms that advise on or sell such products have to maintain strict standards of conduct, including offering clear complaints and compensation procedures.

It’s worth mentioning the Equity Release Council here, too. This is the sector’s trade body that works to raise standards and ensure the best outcome for consumers, representing over 350 equity release professionals. There’s a code of conduct that all members must subscribe to – including a no negative equity guarantee – so make sure to only ever deal with providers who have signed up when looking to arrange a plan.

How a broker can help

Seeking financial advice is an essential part of sourcing a home reversion plan. In fact, the FCA has mandated it, and you won’t be able to take out a product before receiving suitable advice beforehand. But there are more reasons to speak to a broker than obligation.

A number of brokers we work with specialise in equity release and can help you decide if a home reversion plan is the best course of action depending on your unique circumstances. They’ll highlight the risks and potential advantages of taking out such a product, and will work with you to determine how you can make the most of the equity in your home.

If you could benefit from a home reversion plan, they’ll find the best providers. Such products aren’t widely available, but because of their experience in the sector, the broker will know exactly who to approach and will have the contacts to get the right outcome.

If you get in touch we’ll arrange for an equity release specialist to contact you straight away.

What are the alternatives?

Alternatives to home reversion plans could include:

• A retirement interest-only mortgage
• Remortgaging (if an existing mortgage is still in place)
• Downsizing
• Secured loans
• Pension drawdown

However, the most direct alternative to a home reversion plan will be the other form of equity release: a lifetime mortgage.

Home reversion vs. Lifetime mortgage

Much like home reversion plans, lifetime mortgages also allow you to release equity from your home, but in a slightly different way. They’re available from a younger age (55+, compared with the typical minimum of 65+ for reversion plans) and come in the form of a loan secured against your property, though no repayments have to be made in your lifetime, unless you choose to make them.

Instead, interest is charged and “rolled up” over the life of the loan, with the full amount plus all compounded interest repaid when the property is eventually sold. Again, this is usually when you die or go into long-term care.

Lifetime mortgages have several key differences – and benefits – compared with home reversion plans, such as:

• You’re not asked to sell your home (or a portion of it) at the outset
• You can release funds based on the full market value of your property
• You’re still able to release up to 60% of the value of your property yet maintain 100% ownership
• They’re more flexible, and you can often make repayments during the term of the loan should you wish, the benefit being you’ll reduce the amount of interest charged
• More providers offer lifetime mortgages, offering the chance to secure a better deal

Who offers home reversion plans?

Home reversion equity release plans are offered by very few providers, all of them highly specialised. Because they’re such a niche product, it’s essential to speak to a broker who will be able to compare the options for you and help you find the best deal.

Things to consider

If you still feel a home reversion plan could be the right option for you, there’s a few other factors, in addition to what’s been mentioned so far, for you to think about before moving ahead:

Your age

The older you are when you take out the plan, the higher market value you’ll be offered. This means that home reversion plans typically become better value the older you are.

Maintenance

You may not technically own your home anymore, but that doesn’t mean you can let it fall into disrepair. In fact, home reversion providers normally stipulate that you’ll need to keep the property in good condition to maintain its resale value and ensure they get their money back.

Additional costs

Not only will you still be responsible for any maintenance costs associated with your home, but you’ll still be liable for all other property costs as well, such as utility bills and council tax. There may be additional fees to pay when setting up the plan too, such as arrangement or valuation fees, as well as legal costs if you employ a solicitor.

Get matched with an expert in home reversion schemes

Such a specialist product requires expert advice, and we can put you in touch with the broker who can help.

Just tell us a few details and our unique broker matching service will take it from there – we’ll scour our network to find the advisor who understands the equity release market inside out, and has the contacts to source the deal that’s right for you.

Get in touch using our online form or call us on 0808 189 0463 for a free, no-obligation chat.