This page was last updated on 1 November 2020.
Home Reversion Plan
If you are a homeowner looking for ways to get some extra cash in retirement, you may be considering equity release and specifically home reversion plans.
This article is a guide to home reversion schemes. It explains what a home reversion plan is and answers some of the most frequently asked questions about this type of equity release.
Topics that you will find covered on this page
What is a home reversion plan?
A home reversion plan is a scheme where you sell all or part of your home to a home reversion company in return for tax-free cash.
The money you release with a home reversion scheme can either be a cash lump sum or a regular income. You can use a home reversion plan calculator to see how much cash you could get through this type of equity release.
When you release equity from a proportion of your home in this way, you receive a Lifetime Lease. This is a legal document promising that you can remain in your home for the rest of your life without paying rent until you either die or move into long-term care.
However, some lenders may request that you pay a nominal rent to the new landlord each month (for example, £1 or £2).
No interest is charged on a home reversion plan because it is not a loan.
The percentage share sold to the home reversion plan provider stays fixed until the end of the term.
Here is a short video from Just explaining what a home reversion plan is.
What is the difference between equity release and home reversion?
Home reversion plans are a type of equity release authorised and regulated by the Financial Conduct Authority.
Home reversion equity release is when you sell a share of your home to a reversion company at less than its full market value. People do this to receive a tax-free lump sum or a source of additional regular income into their bank account while in retirement.
Plan customers will also receive a lease promising rent-free lifetime tenancy until they either die or move into long-term care.
Typically, the home reversion provider will only pay you between 30% and 60% of the full market value of your home.
The exact amount you receive depends on your age, your health, the value of the property, and the percentage share of the property that you are selling.
The older you are, the more money you can expect to be able to release. This is because the home reversion provider can expect to receive their sale proceeds sooner and there will be less risk to them of house prices and your property being devalued over time.
As with all types of equity release products, home reversion plans may impact your tax position, your entitlement to means-tested benefits, and your pension credit.
You should speak to a solicitor and specialist financial advisors to make sure you understand how a home reversion equity release plan will change your circumstances.
Is a home reversion plan regulated?
Each home reversion scheme is authorised and regulated by the Financial Conduct Authority.
The FCA protects customers and builds safeguards into lenders’ plans.
The best lending companies are also members of the Equity Release Council trade body.
This means that you will have protections such as:
- A lifetime tenancy deal. This document promises that you can remain living in your home for the rest of your life even though part of your property has been sold.
- The ability to move your plan to another property agreed upon by the lender. This is called a ‘portable’ plan.
You can receive more information and support from an expert adviser. They will be able to talk you through your options and help you work out which plans are best for you and your family.
Try our free home reversion calculator and see how much you could borrow in 30 seconds
What are the home reversion plan pros and cons?
There are several home for life plan pros and cons that you should be aware of before making a choice about which equity release option is right for your situation.
- The money you get in return will be tax-free. Depending on the product you select, this money can either be a cash lump sum or a regular income into your bank account.
- You can remain living in your home for the rest of your life with a Lifetime Lease tenancy agreement.
- If property prices increase over time, you can benefit from these increases with your share of the ownership.
- Homeowners do not have to make any interest repayments because home reversion plans are not a loan.
- You can keep a share of your property value to leave to your beneficiaries after you die.
- You can potentially reduce inheritance tax by removing your property from your estate.
- The amount of money that you receive from the plan is far less than their property’s true market value. Usually, homeowners receive 30-60% of their house’s market value.
- Your family’s inheritance will be less because you will no longer be the sole homeowner.
- It can be very expensive to cancel the plan early, as you would need to buy back the lender’s share of the property at full market value.
- Even though plans are portable and you can move to a new property, you will need to pay back some money to the provider if you decide to downsize.
- You may lose your entitlement to means-tested benefits now or in later life. Equity release may impact your tax position and state pension credit in retirement.
- There can also be considerable set-up costs involved with these equity release plans, such as arrangement, valuation, and legal fees.
You should speak to an expert adviser to receive more advice and information about which home reversion mortgages may be best for your financial situation.
Do I qualify for home reversion plans?
There are a couple of strict lending criteria for these home for life schemes:
- The youngest homeowner must be at least age 60. However, many companies have a rule that the owner must be over 65 years old.
- Your property must be worth at least £80,000. Most services also specify that the house must be of standard construction.
- You must be a UK resident.
You can receive more support and advice from a professional financial adviser. They can help you get quotes from companies, and talk you through the potential cost of these equity release services.
What is a home reversion calculator?
An equity release calculator is a tool that helps you figure out how much money you could release with a home for life plan.
All you have to do is input some basic data into the calculator about:
- Your age, or the age of the youngest homeowner. You must be at least 60 years old to qualify.
- Your gender.
- Your marital status. This will be used to determine whether you will be making a single or joint application.
- The estimated value of your property. To qualify for a plan, your house must be worth a minimum of £80,000.
- Your postcode. The law and standards are different depending on whether you are living in England, Wales, Scotland, or Northern Ireland.
- The percentage of equity you would like to release with these financial services.
This information is needed because there are strict lending criteria that you need to meet in order to qualify for a plan of this type.
You may also be asked to provide contact details so that you can be sent a personalised quote.
The calculator will then estimate the maximum amount of money you could get in return.
Are there any additional costs?
Several additional fees are associated with equity release services.
- You must speak to a financial adviser before taking any actions towards selling part of your property to a home for life company. You may need to pay for this professional advice, but some lenders will cover the cost of advice for you.
- You will potentially have to pay an application fee to the lender. This can cost around £695.
- You may need to pay a valuation fee when you submit your application,
- There can also be legal fees involved with equity release. Typically, these can add up to between £400 and £500.
What are the alternatives to home reversion plans?
Home for life plans have become less popular over recent years because they are considered a product with high risks. Today these schemes only make up a very small percentage of the equity release products sold to homeowners.
Below is more information about popular equity release alternatives.
Lifetime mortgages are a type of equity release scheme where you take out a loan secured against the value of your home.
A lifetime mortgage scheme unlocks money which is currently tied up in your property. The money you release may take the form of a cash lump sum, or a series of withdrawals you use to top up your pension income in retirement.
Different types of lifetime mortgage are available:
- ‘Lump sum’ or ‘Roll-up’
You don’t have to make mortgage payments unless you choose to with a flexible plan. You might choose to make monthly payments in this way to reduce the effect of interest roll-up, and protect more inheritance for your estate.
Instead, your home will be sold when you either die or move into long-term care. The proceeds from the sale of your property are used to pay off the debt.
Some providers offer the homeowner the ability to protect a proportion of their house’s value as an inheritance for their estate.
The interest rate on lifetime mortgage services is fixed for life. The exact rate will range between providers and will depend on your individual circumstances and the type of lifetime mortgage product that you select.
Retirement interest only mortgages
With interest only mortgages in retirement, you will receive a lump sum and then be required to pay interest each month.
You might need to provide your retirement income details in your application to prove that you can afford the monthly interest repayment rate.
Another alternative is to consider downsizing your residence. By selling your previous home and moving into a smaller property, you will be able to release money via the proceeds of the sale.
You can then use this money to make home improvements or pay off debt, just as you could with a lifetime mortgage, without impacting your tax position or means-tested benefits.
Moving into a smaller place may also help reduce costs such as energy bills, saving you cash in the long term.
This way, you will also be able to leave your home to your beneficiaries as inheritance.
For more advice on which equity release plan is right for you, speak to professional advisory financial services. They can examine your personal profile, talk you through all the different options, and help you with your searches to find the best scheme for your needs.
We can help guide you through the home reversion process and answer any questions you might have.
First, check how much money you could receive from equity release then speak to someone, if you have more questions.
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All calls regarding equity release are undertaken by Key Equity Release, the UK’s leading specialist in this area.
Other articles that you may find useful
Drawdown Lifetime Mortgage
A drawdown lifetime mortgage is a type of life mortgage where you can release equity from your home in a series of small withdrawals. This is instead of simply withdrawing one large cash lump sum at the start of the mortgage term.
Lifetime Mortgage Rates
The majority of lifetime mortgages have a fixed interest rate for life. Therefore, they are sometimes called a ‘lifetime fixed rate mortgage’. The rate will range between providers and can change quite often..
Mortgages For Pensioners
If you are a pensioner in later life, you may be considering a lifetime mortgage as a way of supplementing your pension income, paying off debts, supporting family, or paying for home improvements in retirement.
Lifetime Mortgage Providers
The Equity Release Council trade body has 14 members. These lifetime mortgage providers are authorised and regulated by the Financial Conduct Authority. They all abide by the ERC’s no negative equity guarantee.
Home Reversion Plan
A home reversion plan is a scheme where you sell all or part of your home to a mortgage company in return for tax-free cash. The money you release with a home reversion scheme can either be a cash lump sum or a regular income.
Home Reversion Calculator
A home reversion equity release calculator is a tool that helps you find out how much money you could receive with home reversion plans. These are different from lifetime mortgage calculators that you often see.