Home Reversion Plans: Unlock Your Property's Value

A home reversion plan is a financial arrangement where you sell a part or all of your home to a home reversion plan provider in exchange for a lump sum or regular income, or both. What you receive from the home reversion plan provider is not a loan, so no interest payments or principal repayments are involved. You also retain the right to live rent free in the property you have sold, whether in whole or in part, until you move into long term care or die. Thereafter, the plan provider will sell the property to realise the return on its investment. If you retained a share of the property, you or your estate will get that share of the sale proceeds.

How It Works

Once you apply, the home reversion plan provider assesses the market value of your property and offers you a percentage of it. That percentage is typically significantly lower than 100%. This is primarily because you will have the right to live rent free in the property until you move into long term care or die. The percentage of the market value offered to you by the home reversion plan provider takes into account factors such as your age, health and the proportion of the property you want to sell.

Who Can Do It?

Home reversion plans are generally available to homeowners aged 60 - 65 or over. The property in question must be your primary residence and meet the home reversion plan provider's criteria. Factors such as the property's condition, location and marketability are likely to be taken into account.

How Much Do You Receive?

The amount you receive from a home reversion plan depends on various factors, including:

• Age: Older homeowners typically receive more of the property's market value. This is because, on average, the older you are, the earlier you are likely to move into long term care or die, the point in time at which the home reversion plan provider can sell the property and realise the value of their investment.  

• Health: Certain health conditions may increase the amount offered. This is because those conditions might increase the likelihood of your moving into long term care or dying earlier than would normally be expected.

• Property Value: Higher property values generally result in higher payouts.

• Percentage Sold: The proportion of the property you sell also affects the payout.

While it is impossible to generalise, subject to individual circumstances and the property in question, a 70-year-old homeowner might be offered around 30-40% of their property's value for example, while an 80-year-old might be offered 40-50%.

This will also depend on the amount you still owe on your mortgage and the amount of home equity you have available. Your home does not need to be mortgage free when you consider a home reversion plan. However, any existing mortgage or loan secured against the property must be repaid when the home reversion plan takes effect. Funds from the home reversion plan can be used to pay off the remaining mortgage balance. It is essential to discuss your specific situation with a financial advisor, as well as the home reversion plan provider, to understand fully how your existing mortgage will affect the process.

Different Home Reversion Plans

Full Reversion

In a complete reversion plan, you transfer 100% ownership of your property to a home reversion plan provider. This allows you to remain in the property without paying rent for the rest of your life or until you move into long term care.  

Partial Reversion

When you opt for a partial reversion plan, you sell a part of your property while retaining a share of the ownership. This means you can still benefit from any future increase in the property's value for the portion you continue to own. When the home reversion plan provider sells the house in the future, you or your estate get a percentage of that.  

Flexible Reversion

Some retirement plans provide various options for receiving funds. You can receive a one-off upfront lump sum or periodic income payments or a combination of both. This flexibility allows you to tailor your income best suited to your individual circumstances.

Pros and Cons of Home Reversion Plans

Pros

1. Access to Funds: Provides access to a lump sum or regular income or both.

2. No Payments: It is not a loan, so you do not have to make any interest payments or principal repayments.

3. Rent Free Living: You retain the right to live in the property rent free.

4. Guaranteed Tenure: You can stay in your home for life or until you move into long term care.

Cons

1. Reduced Inheritance: Selling a portion or all of your home reduces the value of your estate.

2. Lower Percentage of Market Value of Property: The percentage of the market value offered is typically significantly lower than selling the property outright.

3. Loss of Ownership: Full reversion plans mean that you no longer own your home.

4. Impact on Benefits: Plan payments may affect your eligibility for means-tested benefits.

Getting the Best Deal

Compare Offers

When looking for a home reversion plan provider, it is essential to take your time and compare offers from different providers thoroughly. For example, consider carefully the percentage of the market value of your property that they are offering you and any additional benefits or terms that may be included. It is essential to consult a financial advisor who specializes in equity release. They can help you understand the implications of a home reversion plan and how well it aligns with your financial circumstances.

Consider Alternatives

Explore other options, such as selling your property and downsizing, or taking on a lifetime mortgage or another type of equity release product to see if one of those might suit your needs better than a home reversion plan.

Home reversion plans can be a valuable financial tool for older homeowners looking to access the equity in their property without having to move. However, it is essential to understand the pros and cons and seek professional advice before deciding. By comparing different plan offers and understanding their terms carefully, you can ensure that you get the best deal and make a choice that aligns with your financial goals.

FAQS:

Q. What is a home reversion plan?  

A. A home reversion plan is an equity release product where you sell part or all of your home to a home reversion plan provider in exchange for a lump sum, regular income or both while retaining the right to live in the property rent free until you die or move into long term care.

Q. How much can I receive from a home reversion plan?

A. The amount you can receive typically depends on your age, health, property value, any outstanding mortgage and the proportion of the property that you want to sell. Older homeowners and those with certain health conditions may receive more of the property's market value.

Q. What are the pros and cons of a home reversion plan?  

• Pros: Access to funds, no payments, rent free living and guaranteed tenure.

• Cons: Reduced inheritance, lower percentage of market value of property, loss of ownership and potential impact on benefits.

Q. Who qualifies for a home reversion plan?  

A. Home reversion plans are generally available to homeowners aged 60 - 65 and over. The property must be your primary residence and meet the criteria set by the home reversion plan provider.

Q. Are there alternatives to home reversion plans?  

A. Alternatives include outright sale and downsizing, lifetime mortgages and other types of equity release products. It is important to compare options and seek professional advice to determine the best solution for your financial needs.

References:

Home Reversion | Money Helper

Home Reversion Plans Explained | Legal and General | Published 24 Jul 2024

What is a Home Reversion plan? | Telegraph | Published 3 May 2024