Home reversions are the predecessors of today’s lifetime mortgages, and were the first type of equity release plan. A home reversion plan involves selling part, or all of the ownership in your property - usually anywhere between 20% - 100%. Plans start from age 60 and the younger you are, the less you receive, due to the potential longetivity of remaining in the property.
In return for a stake in the ownership of your property, the reversion company will provide a tax-free cash lump sum, or even a regular income over a number of years, or your lifetime. The amount you sell has a direct bearing on the amount of money you receive. Unlike lifetime mortgages, no interest is charged with a home reversion plan, nor could an early repayment charge be applied.
Home reversion plans come in-built protection with homeowners being offered a lifetime tenancy. This provides peace of mind in knowing they have a home for life. When the last homeowner dies or moves into care, the property is then sold. Dependent upon the percentage sold, the homeowners estate is guaranteed their share of the sale proceeds - likewise the home reversion company.
Very few home reversion plans are advised these days, as lifetime mortgages now offer much more flexibility and choice. However, home reversion plans are still part of our advice process and could be relevant if you are worried about the inheritance you’ll leave behind. As a fixed percentage of the property is sold by your estate, you’ll have a good idea of the money you’ll leave for your loved ones.
When a home reversion provider calculates how much money they will offer you, they use three criteria – age of the youngest homeowner, value of your property and the percentage you wish to sell. The amount exchanged by the home reversion company is discounted due to the fact you will be living in their part of the property rent free, for the rest of your life.
For instance, if a male age 65, sold 100% of his property, he is only likely to receive around 40% of it as a tax-free lump sum. More recently, home reversion providers have included the option of paying a fixed, or escalating rent - this will increase the maximum amount they will lend you. Our free home reversion calculator above will give you an idea of the maximum amount you could borrow.
This means that you will be allowed to remain resident in your own home for rest of your life, or until you move into long-term care.
If you retain a percentage ownership in the property, and its value increases over time, when it is sold, your beneficiaries will receive the same percentage, albeit worth more as the property has increased in value.
A home reversion works differently to a lifetime mortgage as you are selling a percentage of your home to the lender. There are therefore no monthly payments to make, no interest charged and no escalating interest being added.
Just as with a lifetime mortgage, you do not need to move home, downsize or relocate, but you are still able to do so if you wish.
Home reversion can provide more protection than a lifetime mortgage, which could see its equity decrease significantly as the interest continues to compound and its market value falls.
As with a lifetime mortgage, the money you receive is tax-free and yours to spend as you wish.
Which means that you are effectively able to guarantee the inheritance you leave for your beneficiaries.
Like liftime mortgages, home reversion plans follow the rules laid down by the Equity Release Council - including the right to remain in your home and the ability to move to a new property.
As you are selling a percentage of your property’s value to the lender, you are no longer the sole legal owner of your home.
Because the lender is taking a risk in buying your property and offering you a lifetime tenancy, they won’t offer you the full market value. Hence, the money received will be lower than if you’d sold your home and downsized.
You need to be five years older than the minimum qualifying age of a lifetime mortgage which start at age 55.
If you die in the earlier years, you could have given up a large equity stake in your home for little return.
As you are selling a percentage of your home to the lender, the inheritance your loved ones receive will be smaller.
That’s because you are receiving a cash lump sum that could take your ‘savings’ above the eligibility thresholds.
If your property increases in value over time, your estate will only benefit from the rise in value of the percentage of your property’s value that you choose to leave to them.
These are home reversion plans which allow you to sell part, or all your property in exchange for a cash lump sum. To understand their features, benefits and risks, please contact Equity Release Supermarket for a personalised, key facts illustration. All quotes can be tailored to your own circumstances and you are under no obligation to proceed.