Home Reversion Plan: Unlock Equity in Your Home

What is a Home Reversion Plan?

A home reversion plan is a financial product that allows homeowners, usually those aged 55 or over, to release tax-free cash from their property. Instead of taking out a loan (like a mortgage), you sell a percentage of your home’s value to a provider at a discount.

How it Works

You receive a lump sum of cash or regular payments, while retaining the right to live in your home for life or until a specified event. In return, the provider owns a share of your property. When the property is eventually sold, the provider receives their share of the sale price, based on the percentage they own.

Key Concepts

Ownership Share

You decide what percentage of your home’s equity you wish to sell. This could be a small portion for a modest cash injection or a larger share for a significant sum.

Discounted Sale Price

The cash you receive is typically less than the full market value of the share you are selling. This discount reflects the provider’s risk and the fact they have to wait for the property to be sold.

Right to Reside

A crucial element is that you retain the right to live in your home. This is often guaranteed for your lifetime, offering peace of mind.

Deep Dive: Considerations

Inheritance Impact

By selling a share of your home, the amount left to beneficiaries in your will will be reduced. The provider’s share is paid out from the sale proceeds.

Property Value Fluctuations

The provider benefits from any increase in your home’s value, as they receive their percentage of the final sale price. Conversely, if the value falls, their return is lower.

No Rent or Mortgage Payments

You do not have to pay rent to the provider or make monthly mortgage payments. However, you are responsible for property maintenance, insurance, and council tax.

Applications of Home Reversion Plans

These plans are often used for:

• Supplementing retirement income
• Paying off outstanding debts
• Funding home improvements
• Covering care costs
• Leaving an inheritance (though reduced)

Challenges and Misconceptions

Misconception: It’s a Loan

Unlike a mortgage, you are not borrowing money. You are selling a part of your property ownership.

Challenge: Reduced Inheritance

This is a significant consideration for many. It’s vital to discuss this with family and financial advisors.

Misconception: You Can Be Evicted

Providers typically cannot force you to leave your home as long as you abide by the terms of the agreement, such as maintaining the property.

FAQs

Can I sell my whole home?

Yes, it is possible to sell 100% of your home’s equity, allowing you to access its full value while still living there. This is often referred to as a ‘lifetime lease’.

What happens if I want to move?

Most plans allow you to move, but you may need to repay the provider their share based on the property’s current market value at the time of sale, or a pre-agreed valuation.

Are there any fees involved?

There are typically setup fees, valuation fees, and legal costs associated with establishing a home reversion plan.