How Does Equity Release Work? – Home Reversion plans

Home Reversion Plans offer an important alternative to Lifetime Mortgage Schemes.

Providers of Home Reversion Plans will purchase 100% or a share of your property in return for a cash lump sum. The provider will own the property but in return you are granted a lifetime lease which gives you the security to live in your home rent free until you die or go into long term care (or if you are a couple when the survivor of you dies or goes into long term care).

Home Reversion Plan Scenario

For example, if you sell 50% of your property to a provider, when you leave  your home, 50% of the property’s future value will go to the Home Reversion Provider and 50% will go to your beneficiaries. If you sell 100% of your property, it will go in full to the Home Reversion Scheme Provider. If you only sell part of your home initially, then it may be possible to sell further shares in your property to get further loans as and when required. Some Home Reversion Scheme providers guarantee to purchase further sums from you if your circumstances change in the future.

Home Reversions Plans are not short term commitments and are not suitable for those wishing to buy back all or a share of their property during the term of the plan.

All Equity Release Council approved Home Reversion Plans allow you to move home, although this will be subject to the new property being suitable to the provider. The amount you receive for the share you sell is based on your age. The younger you are the longer you will be likely to be living in your property rent free so therefore the cash sum offered by the provider will be less.. The amount is at a premium and not on a like for like basis; if you have a £200,000 house and you wish to sell 50%, you would approximately receive around £60,000 as a lump sum.

Home Reversion Plans offer an important alternative to Lifetime Mortgage Schemes.

A Home Reversion Plan is not a loans or mortgage and therefore there is no accrual of interest. Home reversion plans can provide a degree of certainty, which is why they can be a popular choice. An advantage of Home Reversion Plans is that generally they allow you to release a higher amount than available under other equity release plans or Lifetime Mortgages. These schemes work well for clients who wish to take a maximum amount out of their property for their benefit over time and are not concerned about leaving any inheritance.

Customers who wish to guarantee a future inheritance can rest assured with this option as they can leave a certain percentage of the property that has not been sold.

Those clients who wish to repay large mortgages can also find these extremely useful due to the higher release facility available. There are various options available under those schemes such as house price inflation guarantees, under this option it allows your estate to benefit from an extra ordinary increase in your property value over time; therefore if your property grows beyond expectation an additional cash sum may be paid at the end of the plan.

The choice of which type of Equity Release scheme to choose can be complex and a greater understanding of the risks involved is required. Our Specialist Advisers are fully trained to assess your requirements and explore whether Home Reversion Plans is a suitable option.