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What is a home reversion plan?
A home reversion plan is a rare form of equity release that allows you to sell part of your home while you continue to live there rent-free
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As you transition into retirement, exploring financial options to sustain your lifestyle could become paramount. Home reversion plans could be a viable (although rare) solution, currently making up a minuscule part of the equity release market. Home reversion plans offer a unique approach to unlocking the value of your property while you retain the right to stay in it, sometimes rent-free, for the rest of your life.
In essence, homeowners sell a share of, or their entire, property (below market value) in exchange for a tax-free cash lump sum or regular payments while retaining the right to live in the house until death or moving into long-term care. According to the Equity Release Council, there is no day-to-day interference and no restrictions on treating the house exactly as before; as a private home to live in freely.
Talk to the experts:
If you are considering a home reversion plan, getting professional advice is required. It is vital that you fully understand the terms and conditions before entering into any new agreement. Later in this article, we explain where you can get professional advice on your later life options. The broker that you will be introduced to on this page will not provide home reversion plans, and instead offer you a comparison service to assess whether releasing equity with a lifetime mortgage is right for you.
What is a home reversion plan?
Depending on your age, a home reversion plan allows you to sell all or part of your home in return for a cash lump sum, a regular income , or both. Your home, or the part of it you sell, now belongs to someone else. However, you’re allowed to carry on living in it until you die or move out, sometimes paying no rent.
How does a home reversion plan work?
A home reversion plan involves a company buying your home or a part of it. In return you get a cash lump sum or an income, which will be less than the market value of your home, because the buyer:
● allows you to carry on living there, for a fixed figure of rent or sometimes rent free.
● cannot sell it until you die, move into care, or it is permanently vacated.
Usually, the older you are when you start a home reversion plan, the higher the percentage you’ll get of your home’s market value. This will depend on the product type and your personal circumstances. You get the right to carry on living in the home under a lifetime lease but some plans might require a monthly rental payment, so you should make sure you can afford this.
Example of a home reversion plan
Imagine your home is worth £400,000 and a home reversion provider offers you a £100,000 lump sum for 50% ownership.
You accept the offer and over the years, the property’s value increases. After your death, the property is sold for £600,000.
The provider will therefore receive 50% of the sale price, so in this example they get £300,000 and the remaining £300,000 will form part of your estate.
Advantages and disadvantages of home reversion plans
An advantage of a home reversion plan is that you get to use the equity wrapped up in the home that you have worked so hard for.
A disadvantage, on the other hand, is that you will no longer own either part or all of your home. Additionally, you are reducing the value of your estate in exchange for a lump sum less than your home’s market value. You may also affect your entitlement to means-tested benefits.
Could a home reversion plan be right for you?
Home reversion plans are higher risk than standard mortgages and could have major implications for tax, benefits, inheritance and your long-term financial planning. You should always get financial advice before taking out a home reversion plan or any other kind of equity release scheme.
Responsible Equity Release, the providers of the Telegraph Media Group Equity Release Service, do not offer access to home reversion plans. They believe that the product offers poor value for money and restricts the options available to homeowners over the age of 55.
Their suitability for homeowners is rare, hence their position within the equity release market. A lifetime mortgage is the option that offers a lot more flexibility, and the product that the calculator on this page will consider. Do bear in mind that a lifetime mortgage will also reduce the value of your estate and may affect your entitlement to means-tested benefits. To understand the features and risks, ask your adviser for a personalised illustration.
Responsible Equity Release’s service involves a full comparison of your options, from different mortgage products to downsizing or taking advantage of existing savings. With a consultation with one of their expert advisers, you can get to know all the options that might be available to you.
FAQs
Questions to ask your adviser
Here are some important questions to ask your financial adviser:
● Can you transfer the home reversion plan if you want to move?
● How will taking out a home reversion plan affect your income tax position and your eligibility for benefits?
● What conditions does the home reversion plan impose on you for continuing to live in your home?
● If you want a regular income how will you achieve it? Will the income be guaranteed? Will it be fixed or variable? How often and for how long will it be paid?
Can I move out if I'm using a home reversion plan?
All equity release plans from lenders that are members of the Equity Release Council allow you to move whenever you like, subject to a new property meeting the provider’s criteria. However, if you have a home reversion plan, you will not own all of your property. You may not therefore have enough equity to purchase a new home.
Get professional advice
If you’re interested in whether an equity release product could be right for you, follow these simple steps:
- Speak to an equity release broker such as Telegraph Media Group’s partner, Responsible Equity Release who will be able to advise you on your eligibility and the amount you may be able to release with a lifetime mortgage. They do not advise on home reversion plans.
- Book an appointment with one of their advisers, who will be registered with the Equity Release Council, who will talk you through your options and let you know what the right option for you could be.
Find out how much equity you could release with a free equity release calculator.
Read more:
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
Equity release is only available to homeowners that own a property within the United Kingdom.
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205.
Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,690. Your adviser will talk through the setting up costs before you choose to proceed.
Using a Lifetime Mortgage to give a cash gift may incur an Inheritance Tax liability. Your adviser can discuss this with you further. The FCA does not regulate Inheritance Tax planning.
Information correct at date of publication.