A background to home reversion plans
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 in retirement, equity release is becoming an increasingly popular option.
The two most popular types are either a lifetime mortgage or a reversion scheme.
Your eight most important questions answered
1. What is a home reversion scheme?
A home reversion plan is primarily suited to individuals over 65 looking for a solution to their finances. This type of equity release scheme 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 exchange, you’ll receive a tax-free lump sum or regular guaranteed payments. Meanwhile, you’ll be able to remain living at home as a tenant, completely rent-free, without the commitment to regular repayments. This makes it a good choice for those that want lifetime tenancy despite no longer being the sole homeowner, including those that require support or care but would like it administered at home.
Although a plan sounds attractive at first glance, there are some important disadvantages to think about. You can read about some of the negatives below.
With a home reversion scheme, you agree to the conditions of a lifetime lease. Before you approach a 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 of your estate you sold, this time 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 because the original sale was made below full market value.
These plans are undoubtedly higher-risk – but can be incredibly useful for individuals who know 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.