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Homeowners in the United Kingdom have always had the option to release capital from their properties through home reversions, although their prominence has somewhat abated. There are now further equity release choices which seem to have stolen their thunder, which is called the lifetime mortgage scheme and differs by securing a first legal charge against the home.
By obtaining a home reversion plan you sell all, or a part of your home in exchange for a lump sum amount of cash. By selling some of your property you become a co-owner of your property and in recognition of this, the reversion provider will draw up a lifetime tenancy agreement. The tenancy agreement provides the security of knowing you can remain in situ for the rest of your life as long as the terms of the equity release mortgage agreement are fulfilled.
Lifetime mortgages are increasingly popular among homeowners. Many homeowners say no to home reversions due to the fact that the idea of selling their home does not appeal to them. The fact is that many people are not aware of the ins and the outs of the home reversion plan and, as a result, they are quick to reject it.
The lifetime mortgage in comparison works on a different basis. Instead the lifetime mortgage provider releases equity within the property, but charges interest on the money it lends. This is similar in principle to a conventional mortgage with the difference here being that no monthly payments are necessary, unless the option is selected. The lifetime mortgage company takes a 1st legal charge on the property to maintain its security. The mortgage then runs for the rest of the occupants life, until they have both died or the last person has moved into residential care. At that point the property is sold & the lender is paid back the amount initially borrowed plus interest accrued to date.
The fact is that the home reversion plans might be exactly what a home owner is looking for, but because this plan is less popular and due to a lack of sufficient information about the plan, the homeowner may reject it and choose the lifetime mortgage. Homeowners are therefore advised to research further into the scheme before turning it down because it may be exactly what they are looking for. It may actually meet their requirements. Advisers must also keep the home reversion plans in mind as some have the automatic assumption that a lifetime mortgage is the better option – which is their opinion, not the clients!
The home reversion plan should always be considered if you are considering equity release especially by those who are in need of an immediate lump sum amount. The fact is that the home reversion plan could raise the highest lump sum amount compared to the other equity release schemes. This lump sum amount is tax free and may be used for any number of purposes. With the home reversion plan, the home owner does not have any monthly payments, nor are they charged any interest.
With the home reversion plan, the home owner can choose only to sell a part of the home and can choose to retain the other part for beneficiaries. The home reversion plan most definitely has its advantages, which is why it must certainly be considered by anyone who is considering equity release.
Home reversions utilise your main residence. The idea behind this scheme is that you have no other property, income, or means of financial support to cover your expenses, home improvements, or other financial necessities like home care help. Your home cannot have a mortgage or outstanding loan on it, since you are selling a portion of the property. If you have an existing mortgage, it would not prevent you from obtaining any equity release, however this mortgage must be repaid either before completion, or at completions from some of the proceeds of the equity release plan.
If you do have other secured loans then they too must also be repaid possibly using the money obtained from the home reversion plan. For some this is a benefit they enjoy since it takes care of a debt they would otherwise have to leave behind. Many home owners age 65 or older will use home reversion to pay off credit cards, car loans, or personal loans to rid themselves of debt and leave a small inheritance behind.
Home reversions do not demand any maintenance that is above standard. You still have to maintain the home and pay the utilities; however, you do not need to make improvements unless it is something that damaged the condition of the house you sold it in. For instance a roof leak would necessitate repair of the roof. The second property owner under some schemes may be responsible for a part of the repair depending on the amount of damage and the reason behind it.
Lifetime mortgages tend to gain interest because a person can be 55 years of age and take advantage of the equity release. What most forget to factor in during the comparison is that they are leaving behind a debt and a potential loss of inheritance. A home value that changes for the worse reduces the amount the home is sold for. If the mortgage was 80% of the home value and the home value drops that 20% it takes away the inheritance a person meant to leave behind.
Another troubling factor of lifetime mortgages is selling the home before all family members are ready to move on. One family member may be in a long term care centre and the remaining person has to sell the home because they can no longer afford it. Home reversions allow for a lifetime tenancy, which means that other family members can remain rent free even when one person is now in need of more care. To make certain this happens anyone over 65 has to be named in the reversion plan and be included in the lifetime tenancy.
Home reversion schemes are still a functional part of the equity release UK advice process. Always consider ALL your equity release options and ensure you select the right equity release plan for the right equity release reasons. These are specific to you and therefore no recommendation should ever be the same for your financial adviser.
They key to equity release success is to select the plan to suit your attitude to risk; for the actual amount you require, no more and to include the options to meet your ongoing retirement needs into the future.
If you wish to discuss any aspects of the home reversion lifetime mortgage scenario, please call 0800 028 3142 or email [email protected].Back