I’m sure you will agree that when it comes to a better understanding of how equity release works, it can get confusing. This is why we are here to help you by explaining what a home reversion plan is.
The key topics in this guide will help explain it all to you in a very straight forward way. In this guide, you will find
You can also read here more about how an equity release scheme works.
Before we start here is a short video on how equity release works.
Here is now a short video that explains in more detail about how home reversion plans work.
Equity release schemes are rapidly growing in prevalence in the UK and overseas – and with good reason.
As more and more people are unfortunately finding they have left it too late to prepare for the cost of care, equity release is understandably becoming an increasingly popular option.
The two most popular options are either a lifetime mortgage or a reversion scheme.
A home reversion plan is primarily suited to individuals over 65 looking for a method to specifically help them pay for care administered at home – either long-term or in the near future. Home reversion companies specifically offer one type of equity release scheme, which allows you to instantly release and use a portion of the money tied up in your property.
In essence, a home reversion plan involves you having to sell all or part of your home for a sum less than its full market value. In return, you’ll receive a tax-free lump sum or regular guaranteed income. Meanwhile, you’ll be able to remain living at home as a tenant, completely rent-free.
Although a plan sounds attractive at first glance, there are some important aspects of this type of equity release scheme to think about. You can read about some of the negatives below.
Before you approach a home reversion provider, carefully consider your future prospects and be honest with yourself and family members about how realistic it is that you will be able to remain in your property for the rest of your life.
These plans tend to be inflexible in the event of a change of circumstance – and leaving the contract early would force you to buy back the share you sold at full market value.
This can be tricky if your money is tied up paying for the ongoing cost of care – and also leaves you significantly out of pocket after the original sale was made below full market value.
These plans are undoubtedly a high-risk option – but it can be incredibly useful for individuals who know that they are likely to remain in their own property and need to release funds early to pay for home care administration or modifications to their property to enable them to stay.
Because this option is only suitable for those who know that they can and will remain in their property it can be a little restrictive – and is naturally not open to everyone.
To prevent against negative equity the amount that you can get is normally between a range of 20% – 60%.
Typically, the older that you are the higher the % you may be offered. However, you never typically get more than 60% because the home revision provider offering the equity release mortgage is taking a risk that the value of your house does not fall.
In addition, it does not know when it will get its money back, as they cannot sell the property until you die or move into care. Also, remember that you often get less than what you perceive the full market value to be.
The amount that is offered is based on the following factors:
– how healthy you are
– the current value of your house and what it is likely to sell for.
You should also remember, that even though the mortgage company will essentially own part of the house, you could still be liable for other costs such as annual ground rent irrespective of what proportion of your property has been sold.
You can use the home reversion plan calculator below to see how much you can get out of your property tax-free.
– It’s a great way to access quick money to pay for later life and your long-term care costs
– You get to stay in your property and benefit from the equity you have built up
– The money that you take out of your property is tax-free
– It’s an efficient way to avoid inheritance tax. You can read more about that here.
– It helps with your estate planning as you can use part to fund your long term care and part you can leave as an inheritance to your loved ones.
– If you want to buy a care fees annuity, you can use the proceeds of the plan to pay for this.
– The majority of providers are authorised and regulated bu the financial conduct authority (FCA).
– Due to the extra income, you will have, you might find that there is an impact on the benefits you receive from the government, particularly if you receive means-tested benefits. This is because it will impact the assessment they do to see what income and capital you have. You can read more about that here.
– A big thing is that you won’t have a property to pass on as an inheritance, as it will need to be sold when you move into a care home or die.
– Even though you will continue to live in the home, you will no longer be the sole owner of the property.
– If you decide to change your mind, there could be a financial impact on that. This is because if you decide to buy back your share of the house, you would need to pay the full market rate, and this could be more than what you received for your share in the first place.
– Not all plans are portable. So, if you decided you wanted to sell your home and move elsewhere, you would need to get permission from the equity release provider.
– Any costs associated with the transaction, such as legal, mortgage arrangement and valuation fees will be met by the homeowner.
Choosing the best equity release scheme for your needs will depend on your personal situation and future prognosis. This is irrespective of whether you use a home plan or a lifetime mortgage plan.
For example, if you have recently been diagnosed with a long-term health condition it’s important to have a frank and realistic discussion with the medical professionals in charge of your care.
Explain that you are considering financial options to help you to pay for imminent care needs, and ask that they are honest and give a detailed explanation of the type of issues you may encounter in the future and the level of care that is likely to be required.
Irrespective of whichever option you look at always ensure that the provider you are looking to use is authorised and regulated by the financial conduct authority,
You can read more about lifetime mortgages and drawdown lifetime mortgages here.
When you take out a lifetime mortgage or a Home Plan, you can choose to either have your money paid to you as a one-off cash lump sum or you can look to take it as an income whilst you are alive.
The benefit of taking it as a tas-free cash lump sum is that you will give a large sum upfront.
This gives you the freedom to do something nice with it or use it to modify your home to make life easier. However, there is a risk with this option, because if your money runs out and you spend it all how will you meet the costs of care later in life.
Whilst it’s not as lucrative as receiving a tax-free cash lump sum, an ongoing regular income does at least guarantee that you will be paid regular amounts for the rest of your life or at least until you go into a care home.
However, the risk with this is that if you died shortly after taking out your plan, a large proportion of your inheritance will be lost (but some plans do offer protection about this, so this is something you should ask about).
As you can see, there are risks with both options above. However, there is nothing to stop you looking at taking a mix of the above. Perhaps only take what you need as a lump sum and then take the rest as a regular income.
When the opportunity to put aside money to pay for care in the future has passed, the range of options for investments that don’t affect the quality of life and inheritance begins to narrow. Therefore equity release has become one of the most viable and attractive ways to fund long-term care – and with good reason.
Equity release schemes enable you to retain ownership of your home and in most cases continue to live there.
Some people won’t be eligible for certain types of equity release schemes – or it may not be a suitable option at all.
It is essential that you use a specialist to secure a home scheme. They will ensure that your interests are always protected and also ensure that you don’t waste thousands of pounds on a bad deal.
There are two options for you to consider.
We have created a directory of financial advisors that specialise in helping people find the right lifetime mortgage or home plan equity release plan provider. The directory has advisors listed from all over the country. Always check that the provider the financial advisor uses us regulated by the financial conduct authority.
If you do not feel confident in choosing an advisor, you can leave your details below, and we will find an advisor for you. We do not charge for this service and it is absolutely free.
For more expert insights and professional assistance with the financial aspects of care, take a look at our related articles here. You may also like to browse our directory of financial professionals who specialise in later life and care provision.
To help our site users you can have a free consultation with an equity release specialist to help you better understand how it works and what your options might be.
To do so you can book an appointment directly using the calendar below. Just pick your preferred time and date and someone will call you to help.
An equity release calculator will tell you how much money you could receive as a tax-free lump sum. The amount is usually dependant on your age and the value of your house.
Interest rates vary and can be anywhere between 3% and 7%. You can call us on 0800 953 3792 and get information on the latest deals, as they can change every day.
Yes, the money you receive is tax-free. However, if you are in receipt of means-tested benefits then these can be impacted. You can contact us on 0800 953 3792 and see if you would be impacted.
The money from equity release can be used for a variety of things. Typically it is used to pay for long term care, modify your home to help with later life living or even to treat yourself to a holiday of a lifetime and help your family financially.
The most popular type is called a lifetime mortgage. If you are over 65 then a home reversion plan might be a better option, Get in touch with us and we will be able to tell you what we think would be best for you.
1 - What is an equity release calculator
2 - What sort of interest rates are applied to equity release mortgages?
3 - Is the money from equity release tax-free?
4 - What can you use the money from equity release for?
5 - What are the different types of equity release mortgage?
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