Home reversion explained

If you need some additional income in later life, you could access a percentage of the equity in your home, this might be especially beneficial if the value of your property has increased in value since you bought it.

This process, or product, is called equity release, and it has become an increasingly popular option for older homeowners who don’t particularly want to downsize to access some tax-free money from their homes without having to sell their property.

There are two main types of equity release: a lifetime mortgage and a home reversion scheme.

How does a home reversion plan work?

Home reversion is the least popular form of equity release. [2] It involves selling between 25% and 100% of the market value of your home to a company, in return for a lump sum in cash, regular instalments, or a mixture of both. However, you do get the right to remain there until you die (or sell your remaining share) often under a lifetime lease, usually paying no rent. Although some plans might require you to make a monthly ‘rent’ in exchange for you releasing a larger amount.

This type of equity release plan is usually available to homeowners aged 60 and above, though if you’re older or in poor health when you apply, you might be able to get more money with an enhanced plan. That’s because you will likely be in your home for less time than if you were younger or in good health, so your reversion provider is taking less risk.

Home reversion doesn’t necessarily prevent you from benefitting from any future increase in house prices on your share of the property but not the full value as the provider would own a percentage. It also reduces any inheritance you may leave behind and can also affect your entitlement to any means-tested benefits.

How much can you receive?

You should expect to be offered between 30% and 60% of the true market value of the share you sell to the reversion company.

When deciding how much money they are willing to pay for share of your property a provider will consider several factors.

• • Your age.
  • The current market value of the property.
  • The location of the property and the future desirability of the area.
  • How much of a share in the property you are willing to sell.

Benefits of a home reversion plan

• • You can receive between 35% to 60% of the full market value for a share of your home
  • The older you are the higher the amount you can receive
  • You would benefit from any increase in the value of the property.
  • You can guarantee an inheritance as the share sold is a fixed percentage.

Risks of a home reversion plan

• • You would retain a beneficial interest in the property only, ownership (and the deeds) of the property would be transferred to the provider.
  • It might affect your tax obligations and entitlement to any means-tested benefits.
  • Future property prices fluctuate and are not guaranteed.
  • Releasing equity from your home will reduce the amount of inheritance you might leave your beneficiaries.

Is it right for you?

Home reversion can be a convenient way of releasing equity from your home. If you want a lump sum or need some income now, and you want to stay in your home, and you don’t have any beneficiaries a home reversion may be worth considering. However, if you are concerned about how much inheritance you leave, then a home reversion scheme might not be suitable for you.

You should also carefully consider the following:

• • They are generally higher risk than lifetime mortgages and can affect tax and your eligibility for means-tested state benefits.
  • Home reversions are normally best suited to older people who are not expected to live as long.
  • You will no longer own all your home.
  • You will have to keep the property maintained to a reasonable level while you live in it
  • You will have to adhere to the terms of the lifetime lease and you could still be liable to pay ground rent regardless of how much of your home you sold.

It’s important that you get a solicitor to check through the lease and provide you with advice.

To properly understand the features, benefits, and risks of a home reversion plan speak to an adviser who is a member of the Equity Release Council.

How popular is home reversion?

Lifetime mortgages are far more popular than home reversion plans, in Q3 of 2022 home reversion accounted for literally zero of the equity release market. A home reversion plan might be a good choice for you, especially if you are older or in poor health.

Home reversion compared to lifetime mortgages