What Is A Home Reversion Plan?

If you’re over the age of 60, own your own home, have no dependents and are looking for a way to get a quick lump sum of money, then you may well consider opting for a home reversion plan.

While you may have come across the term before, many people are understandably confused about what a home reversion plan is and what it actually does.

In this article, we’re here to help and will answer the question ‘what is a home reversion plan?’ providing you with all of the information you need to consider whether or not it is right for you and your situation.

Read on to find out more.

What Is A Home Reversion Plan?

First, let’s establish exactly what a home reversion plan is.

Essentially, home reversion plans allow people to sell a portion of their property to a private company or entity. Usually, this will be at least 25% but in some cases, people will choose to sell more. Sometimes, they may even decide to sell 100% of the property.

Whatever the percentage that is sold, the homeowner will then receive a cash lump sum, a regular income or both. But, the person will still live in the property. It’s a bit like becoming a tenant in a home that used to be yours but now is fully or partly belonging to somebody else.

In some cases, the seller will even pay a pre-agreed rental cost to the new owner.

This scheme is only available to older people who are aged 60 or above. The main benefit of engaging with a home reversion plan is the access it gives you to a large lump sum of cash.

However, there are a few drawbacks.

For instance, you will not be allowed to pass the property on to any dependants once you pass away, it will likely impact your eligibility for certain benefits (especially if they are means tested) and if the property price increases in the future then you will not see the benefits of an increase in valuation.

Furthermore, home reversion plans are usually paid out at less than the market value. This means you’ll get less for your property than you would have done if you sold it in the conventional way.

How Do Home Reversion Plans Work?

Now we’ve established what a home reversion plan is, let’s take a look at the mechanics of how they work.

If you’ve taken out a home reversion scheme then the ownership of the percentage you have sold will go to the third party. Then, you will receive the pre-agreed payment. It’s worth noting that in some cases a home reversion plan can be made portable. This means that you would still be able to move house if you wanted to in the future.

The buyer, or provider, will never take any additional money out of the home while you are living there. This will only occur once the house has officially gone on the market which is something that is only likely to happen once you have passed away, or if you need to move into a long-term care facility. You will never have to pay back more than the value of the property.

While only people aged 60 or above can take our home reversion plans, the older you are the more likely it is you will get a better deal. This will also be the case if you’re unwell or have a terminal condition. This is because it means the end of your life is nearer and, therefore, the amount of time you will likely spend in the property will be less than a healthy younger person. The benefit of this for the buyer is that it is less of a gamble on what the housing market and house prices will be like in the future.

What Is The Difference Between A Home Reversion Plan And A Lifetime Mortgage?

Many people confuse home reversion plans with lifetime mortgages, however, there are many key differences between the two.

A lifetime mortgage is a type of loan that is secured against the value of the property. Unlike a home reversion plan, you will still retain 100% ownership of the property and the loan is only repaid once you have passed away or moved into long-term care. It is a way of releasing equity from the house while still retaining ownership which is why it tends to be more popular than a home reversion plan.

However, a home reversion plan may be a better choice if you’re older or in poor health.

Home reversion plans include:

Selling 25% to 100% of your property
Buyers pay less than the market value
Must be 60 or above to apply
No interest is charged
Better deals for older people or those in poor health

In contrast, lifetime mortgages are loans that include:

The amount you borrow will vary depending on several factors including your age. On average it will be a 20% to 60% loan secured against your property.
Must be 55 or above to apply
Interest will be charged
Your age and health will impact the rate

What Are The Similarities Between A Home Reversion Plan And A Lifetime Mortgage?

While there are many key differences between home reversion plans and lifetime mortgages (as outlined above) there are a few things that you will receive with both schemes.

This includes:

All cash is tax free
Money can be provided as a lump sum or regular payment
There is no chance of ending up with negative equity
Portable plans are available to allow you to move house
Payments may need to be made to lenders (plan dependent)
Loans can be paid back or you can repurchase the percentage of your home that has been sold (but this is likely to be very costly)
Eligibility for benefits will likely be impacted
There will be less inheritance for dependants or loved ones
It is mandatory to conduct the process with a financial advisor