What is Home Reversion?
- Home reversion is a form of equity release where you get cash from your home, without having to move out or pay rent.
- You can sell the entire property or just part of your home.
- You can receive a tax-free lump sum or regular income.
- You'll only get 20-60% of the market value of the share of the property you sell.
How does home reversion work?
You can sell all of the equity in your home or just a share of it. The latter option is popular if you want to ensure there is something left in your estate for your loved ones to inherit.
The reversion company will pay you 20-60% of what that share is worth, depending on your age. The longer you are expected to live in the rent-free property, the less cash you will get. The good news is that you don't have to pay any tax on this cash.
You can take the money you're paid as a lump sum or as a regular income, and there is no interest to pay, as you're not borrowing anything. Some plans may pay you a higher percentage of the property value if you can afford to pay monthly rent on the property. However, this may not be cost-effective, as you'll still be responsible for maintaining the property.
If you have yet to sell 100% of the property and need more money, you can ask your reversion provider if they will release more.
When the property is eventually sold, you (or your estate) will only benefit from increased house prices on any portion you did not sell.
How much does home reversion cost?
| Arrangement fee, paid to the reversion provider | ~ £100 - £800 |
| Advice fee, paid to the advisor for their advice & help arranging the service | ~ £1,500 - £2,000 |
| Property valuation to determine the market value of your home. | We offer this service from £360 INC VAT |
| Independent legal advice on the lease terms. | Our legal fees for this service are £1,399 INC VAT |
Ongoing home reversion costs
You'll have to pay for the upkeep of the property, and if you've chosen a plan which includes a rental payment, you'll need to factor in these costs, too.
How much equity can I release with home reversion?
You can sell 25% - 100% of the property with home reversion, but it's important to note that you'll only be paid 20% - 60% of its value. If your home is valued at £300,000 and you own 100% of the equity (that means you have no mortgage or other charges secured against it), you could release anywhere between 25% of the equity (worth £75,000) to 100% (worth £300,000).
If you chose to release 50% of the equity (£150,000), for example, you could get between 20% of the value (£30,000) and 60% of the value (£90,000). How much you will get for your equity depends on your age and chosen reversion provider.
Is home reversion right for me?
Home reversion is best suited to people over the age of 70 who need the cash, can't or don't want to downsize and aren't bothered about leaving equity in their home to be inherited as part of their estate.
What is the minimum age for a home reversion plan?
This type of equity release is available for people over 60. Lifetime Mortgages are available for over 55s
What are the disadvantages of home reversion?
Pros
- You receive cash to pay for care and living costs
- You get to keep living at home until you die or move into long-term care
- You won't have to move
- You won't have to pay tax on the cash
- If the remaining equity in the property brings your total estate below the threshold, you may avoid inheritance tax
- You can release some equity and keep up to 75% of the property to bequeath in your will
- You could use the cash released to take out an immediate needs annuity policy, which can be used to guarantee a lifetime income to pay for care costs.
Cons
- You don't get full value for the equity you sell
- You won't get the benefit of any appreciation in value during the rest of your lifetime
- You'll still have to set aside money to pay to maintain the house, even though you won't own it
- You could lose eligibility for means-tested benefits, as the cash you release will be considered when assessing your income and capital
- Your home will not pass on to your family when you die, and they will inherit much less cash.
- You'll no longer own the property (or share you sold). If you want to buy that share back, you'll have to repurchase it at full market value (not the 20-60% you received for it) with appreciation.
- It is not very good value if you die shortly after taking out the plan. Some, but not all, home reversion companies will give your family a rebate if you die within the first few years.
- You lose some basic freedoms. Not all home reversion companies will allow you to move house, and you'll have to get their permission if you want someone else to move in.
What is the maximum amount of a home reversion plan?
The maximum equity you can release is 100%. If you release 100% of the equity (you sell the whole property), the maximum cash you'll get is 60% of the current value.
If your home is worth £300,000, the maximum amount of a home reversion plan would be £180,000. So, you'd need to be sure that's enough to live on for your lifetime, with some set aside for property maintenance. It might be more cost-effective to sell and rent instead if you think you'd spend less than £120,000 on rent in the rest of your lifetime.
If your home is worth £300,000, the minimum amount of a home reversion plan would be £60,000. If your cash runs out before you die, you'll have nothing left to live on, and you won't be able to sell or borrow against your home, but you'll be able to continue living in the property.
Can I use home reversion to pay for care?
If you are looking for at-home care, the cash released can be spent on care costs. It is not a cost-effective solution if you are looking for residential care.
The cash you release can affect your means-tested benefits, so you may not be entitled to the same benefits or state-funded care as you would without having released the cash.
You can use the cash to pay for care directly, or you may be able to use it for an immediate needs annuity policy, which can guarantee an income to pay for your care costs.
If or when your needs change and you need to move into long-term residential care, your home will be sold.
What is the difference between equity release and home reversion?
Equity release refers to releasing cash from the equity you hold in your home without having to sell and move out. There are two types of equity release: home reversion and lifetime mortgages.
How does a home reversion scheme differ from a lifetime mortgage?
Lifetime Mortgages | Home Reversion Schemes | |
Is there a minimum age? | Usually 55, depending on your Lender | May be up to 65, depending on your Provider |
How much equity can I take out? | Usually, you can borrow up to 60% of the value of your property. (Dependent on your age and the value of your property). | You can release 25% - 100% of the equity, but you'll only get 20% - 60% of it's market value (Dependent on your age and the value of your property). |
Can I sell my house if I have taken equity release? | Yes. If your Lender agrees to accept the transfer of your equity release scheme to the new property. | |
Do I get all the money at once or in payments? | This will depend on your Lender/Provider. If you can get the money in payments, it means you only pay the interest on the amount you’ve withdrawn so far. | This will depend on your chosen product. |
What property can I use? | The Property must be your main residence. | |
What are my rights to the property? | You retain ownership of The Property until you die or move into care. (The property must continue to be your main residence and you must abide by the terms and conditions of your contract). | You retain the right to live in the Property rent-free until you die, but you are still responsible for maintaining and insuring The Property. You must get the provider's permission for anyone else to move in. |
Where does the money come from? | You take out a Mortgage secured on The Property, equivalent to the full market value of the portion you are mortgaging. | You sell part or all of your home to the provider for 20% to 60% of the market value. This portion increases depending on your age |
Can I protect any of the ownership of my estate? | Depending on the mortgage provider, you choose to ring-fence some of the property's value for your family to inherit. (This will reduce the amount you can borrow against the property). | You can keep a portion of the property for your family to inherit (this percentage remains the same regardless of any change in The Property's value unless you sell more or decide to take out loans against your remaining equity) |
Do I have to make any payments? | No. You can choose a lender who allows you to make repayments on the mortgage or to allow the interest to 'roll up', increasing the total amount owed every month. | No, but you are still responsible for maintaining and insuring The Property |
When is the money paid back? | When you die or move into long-term care, the loan amount and any accrued interest are paid back to the lender from your estate. | When you die or move into long-term care, The Property is sold. The sale proceeds are shared according to the remaining proportions of ownership |
How much interest do you pay on equity release? | Interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan ( ERC standard). Different Lenders and mortgage agreements will allow you to pay none, some or all of the interest. However, this may be means tested. | You do not borrow money in a home reversion plan, so you do not pay interest. |
Questions to ask your advisor
Each provider is different, and it's important to check the details before you go ahead to avoid any nasty surprises.
- Can you move house and transfer your equity release product?
- How will the product affect your means-tested benefits eligibility?
- What conditions or restrictions will be imposed on you living in your home?
- Will the income be fixed or variable?
- Will the income be guaranteed for life?
- How often will it be paid?
And, if you're getting a regular income rather than a lump sum:
Why do I need independent legal advice on a home reversion plan?
Home reversion schemes are risky, and you will never get the full value of the equity you sell. If you don't fully understand what you're giving up or the new terms you're agreeing to, you might find yourself trapped in circumstances you don't feel are fair. Due to their complex nature, equity release schemes require a certificate of advice from a professional solicitor to prove that they are satisfied you understand and wholly agree to the terms before you can sign the contracts.
We select specialist solicitors who we know to deliver quality service at good value for money, and we negotiate the best prices for our clients, who pay no referral fee. Our fees start from £1,399 INC VAT.
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Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
