What is a home reversion plan?
Have you built up significant equity in your home but need additional cash in retirement? A home reversion equity release plan could be one solution.
If you’re a homeowner looking to unlock some of the money tied up in your property, a home reversion plan might seem appealing.
This type of equity release lets you receive cash in exchange for selling a portion of your home while retaining the right to live there.
However, it’s essential to fully understand the trade-offs before making a decision. Let’s explore what home reversion plans are and how they work.
Please Note: The content on this page is designed to be a helpful starting point for understanding equity release. It explores the concept, different plan types, and the general process involved. However, equity release is a complex financial decision with significant implications for your long-term financial security. To determine if equity release is the right option for you, it’s essential to consult with a qualified financial adviser who specialises in equity release products.
What is a home reversion plan?
A home reversion plan is one of two types of equity release plan, the other is a lifetime mortgage.
These retirement mortgages give you a way of accessing some of the equity value in your home, without having to move.
With home reversion you can choose to take a cash sum, a regular income or a mix of both.
Home reversion plans aren’t as popular as lifetime mortgages but it’s important to understand what they are and what they do.
How do they work?
If you are over 60 and own your house, a home reversion plan allows you to generate a tax-free cash sum by ‘selling’ a share of your home to the home reversion provider.
You have the right to remain in your home, rent free, until you die or move into long-term care.
There are no interest charges or monthly repayments to worry about.
Part of the process will involve changing the title deeds at Land Registry.
How much cash can be released?
How much you can release will be determined by your age, the property value and your health.
You will decide on the proportion of your home that you would like to sell. This can be from 20% to 100%.
As home reversion providers don’t use your home’s full market value, you won’t know how much you can receive in advance.
Older borrowers will be given higher amounts and this can be further enhanced if you have certain health conditions.
What can you spend the money on?
One of the major benefits of home reversion plans is the freedom to use the money you receive however you want.
Whether you need to supplement your retirement income for a comfortable lifestyle, invest in home improvements that make your life easier, or cover the potential costs of future care, the funds are yours to use as needed.
You will find more useful information in our article: What can you use equity release for?
How is the money paid back?
You have the legal right to remain in your home until you pass away.
So when you die, or move permanently into long-term care, the home reversion company will sell your home to repay the debt in full.
The amount of money they receive will depend on the percentage you originally sold to them.
If you sold them 50% of your home as part of the plan, then they will receive 50% of the sale proceeds. The other 50% forms part of your estate.
Benefits and risks
Home reversion plans offer a way to access some of your home’s value without having to move.
This can be a major plus if you love your home and want to stay for as long as possible.
The cash you receive, either in a lump sum or as regular payments, can also make retirement less stressful and more enjoyable. Since there are no monthly repayments involved, you won’t have that additional financial burden.
Additionally, if leaving a large inheritance for your loved ones isn’t your top priority, a home reversion plan lets you tap into that equity now and use it for your own needs.
However, there are significant trade-offs with home reversion plans.
Most importantly, you’ll be leaving a smaller inheritance, and potentially nothing at all, since you’re selling a portion of your home (which could be 100%).
Additionally, you won’t receive the full market value for the share of your house you sell – reversion companies offer a discount in exchange for letting you remain in the property. Another potential downside is that you essentially become a tenant in part of your own home, which might come with restrictions on modifications.
Depending on the plan, you could face future costs like rent or ongoing maintenance fees.
Consumer protection
Home reversion plans in the UK are regulated by the FCA.
The Financial Conduct Authority (FCA) oversees all equity release providers, ensuring they are authorised and regulated.
Additionally, the Equity Release Council (ERC), an industry body, sets standards prioritising consumer protection. ERC members must offer key safeguards like the “no-negative equity guarantee,” mandatory independent legal advice, and the right to remain in your home for life (unless you move into long-term care).
Always choose providers (and advisers) who are both FCA-authorised and ERC members for maximum protection and peace of mind.
You will find more useful information in our article: The Role of the Equity Release Council
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Eligibility
Who can get a home reversion plan?
YOU
You need to be 60 or over and some providers have a minimum age of 65.
Joint plans are available and the age of the youngest person will be used for eligibility purposes.
YOUR HOME
Not all properties are suitable for home reversion plans and new builds, flats, and retirement homes are typically excluded.
Properties like former local authority houses, listed buildings, and timber-framed homes might be accepted, but often with a reduced valuation.
Home reversion plan or lifetime mortgage?
Home reversion plans and lifetime mortgages offer two distinct ways to access your home’s equity.
Home reversion plans involve selling a portion of your home’s ownership for a cash payment or income.
You get to stay in your home without worrying about monthly payments. However, this means a significantly reduced inheritance for your loved ones, and you receive less than the market value for the portion of the home you decide to sell. The property is sold when you pass away or move into long-term care to repay the debt.
Lifetime mortgages, on the other hand, function like a loan secured against your home.
No monthly repayments are required, and the loan, along with accumulated interest, is repaid when you pass away or move into long-term care. With a lifetime mortgage, you retain full ownership of your home, potentially leaving a larger inheritance. However, the total debt grows over time due to interest.
Which is the most popular?
Lifetime mortgages are significantly more popular than home reversion plans.
This is largely because lifetime mortgages allow you to keep full ownership of your home, possibly offering the potential to leave a larger inheritance for your loved ones.
Additionally, lifetime mortgages often provide more flexible options, like the ability to make interest payments, protect a portion of your equity, or choose a drawdown plan that lets you access cash as needed.
Since you retain ownership, your estate can also benefit if the value of your home appreciates, helping to offset the interest that accrues over time.
In contrast, home reversion plans generally offer less money for the portion of your home sold, making them less financially appealing for many homeowners.
Is it right for you?
Home reversion plans can be a tempting solution for accessing some of your home’s value while remaining in your familiar surroundings.
However, this option comes with significant trade-offs that need careful consideration.
You also need to understand the retirement mortgage alternatives like a lifetime mortgage or RIO mortgage before making any decisions.
Only a suitably qualified financial adviser is permitted to help you set up or amend a home reversion plan.
They will be able to fully explain your options, the costs involved and the advantages and disadvantages.
Once they fully understand your situation they can begin to research your options and select a suitable equity release solution.
Let Respect Mortgages help you take the next step.
We can match you to an award winning equity release specialist, with over 25 years experience helping people just like you. Importantly they’re also members of the Equity Release Council.
Please call us on 0330 030 5050 for more details.
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Yes! One of the key benefits of home reversion plans is unrestricted spending. You can use the money for anything – enhancing your retirement, home improvements, care costs, or any other needs or desires.
Read more: What can you use equity release for?
When you pass away or permanently move into long-term care, the company sells your home. The percentage they receive corresponds to the portion of ownership you sold them. The remaining proceeds become part of your estate.
Yes, home reversion plans in the UK are regulated by the Financial Conduct Authority (FCA) and the Equity Release Council (ERC). ERC members must adhere to additional standards like the “no-negative equity guarantee” and ensure you receive independent legal advice.
Yes, joint plans are available. The age of the youngest person is typically used for eligibility purposes.
Lifetime mortgages are far more popular. They offer the potential to leave a larger inheritance, more flexibility, and the possibility of benefiting from increases in your home’s value over time.
Essentially, yes. Since you sell a portion of your home, you become a tenant in that part. There might be limitations on what modifications you can make.
Depending on the specific plan and provider, you might have to pay ongoing maintenance fees or rent in the future. It’s vital to understand all potential costs upfront.
Yes, you can still gift money from the funds you receive. However, large gifts could impact eligibility for certain benefits. It’s advisable to discuss this with your financial adviser to understand potential implications fully.
Read more: Can I give my children money from equity release?
No, the money you get from a home reversion plan is considered tax-free.
Read more: Do you have to pay tax on equity release?
