Home Reversion Plans
A Reversionary Scheme involves the sale of a proportion of your property to the provider. You retain the right to continue living in the property on a life tenancy. The amount of capital received will be substantially less than the market value of the property. However the main advantage with the Reversionary Schemes is they tend to release more capital from the property than is possible through a Lifetime Mortgage.
You sell your home or a share of it to a reversion company for a lump sum or in return for a monthly income (or a combination of both).
Technically you become a tenant, albeit with the right to continue living in your home rent-free (or sometimes for a nominal rent) for the rest of your life.
When the property is sold – usually when you die – the reversion company gets its payout. If, for example, you sold 50% of your property to the reversion company, it gets 50% of the proceeds – including any growth. If you sold 25% of your property, it gets 25% of the proceeds, and so on.
In addition, the reversion company will also only pay you a percentage of the current market value for the share of your property it buys. This is because you get to carry on living in the property until you die, and the company may have to wait years for its return.
If you sell all of your property to the reversion company, for example, you will typically get between 30% and 50% of its current value. It will rarely be more than 60%. The actual figure will depend on your age (and your partner's). Older people will get more, and men get more than women – because of differences in how long they are expected to live.
- The right to remain in your property for the whole of your life is guaranteed.
- There are no repayments to be made; the loan company is repaid on the sale of the property.
- May release more capital than other types of Equity Release.
- Can be underwritten to take into account your state of health. If you are a smoker or have a serious illness, you may be able to get a bigger payment.
- You know at outset what share of your home (if not its value) you will be leaving to your family.
- You continue to share in any rise in the value of your property (unless you have sold its entire value).
- The amount of capital is likely to be substantially less than the true market value. The reversion company will buy at a discount to the current market value. The big discount at which the reversion company will want to buy makes these schemes less suitable for people in their 60s.
- You no longer own the portion of the property sold, which can restrict your options with the property in the future.
- You do not get the full benefit of market appreciation of property value.
- The structure of this scheme means that it is unlikely that further funds could be raised against the property, and as such is fairly inflexible.
- Often only available to older clients.
- If you die soon after taking out a plan, you could effectively have sold off your house (or a share of it) on the cheap. Some schemes give families a rebate if you die within the first few years of signing up
These schemes are not suitable for everyone. There are advantages and disadvantages involved and it is prudent to seek qualified professional advice before committing yourself. It is important that you consider all the options available in order to be sure you take the most suitable action for your own needs and circumstances. To understand the features and risks of each option please call us.
There are other factors to consider when arranging a home reversion plan, such as any effect it may have on your tax status, or your entitlement to means tested benefits or age allowance. Releasing equity also means your estate would receive less or nothing upon your death, depending on the type of plan taken.
Call us for equity release advice on Northampton 01604-832932.
This is a Home Reversion Scheme, to understand the features and risks ask for a personalised illustration.
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