A home reversion plan can be used to sell all or part of your home to unlock cash that you can use in retirement. You are able to continue living in the home until you either move into permanent residential care or pass away. But how do home reversion plans work, and how do they differ from other equity release options? Read on to learn whether a home reversion plan might be right for you.
How do home reversion plans work?
If you are aged 65+ and own the home you live in, you can use home reversion plan to release tax-free money for a more comfortable retirement. This is achieved by selling a share of your home to the provider.
In addition to the release of capital, which comes either as a lump sum or regular income, you will get a ‘lifetime lease’. This is a legal promise that you can remain in your home until the time comes that you either move into residential care or you die. When that time comes, the share you own in your home will go into your estate to be left to your family, so when the property is sold then proceeds will be split between your estate and the home reversion plan provider you went with.
How much cash can be unlocked?
The amount of cash you unlock really depends on your circumstances. You will need to contact an adviser that deals with home reversion plans or speak with a provider directly. As a general rule, if you’re 65 then the amount you can unlock may be around 25% of the market value of your home. The older you get, the more cash you can release, and it goes up to around 60% of the home’s value when you reach the age of 90.
You could technically sell 100% of your home, but this is not usually recommended. Reversion providers provide capital at a discounted rate, so you wouldn’t actually get 100% of the property’s current market value.
Home reversion plan vs. lifetime mortgage
If you have established that equity release is a good option for you, it’s time to select the equity release scheme that will be the best fit. The choice usually comes down to selecting a home reversion plan or taking out a lifetime mortgage. The latter of the two means that you take out a loan against the equity you have in your home, as opposed to a home reversion plan in which you sell all or part of your home to the reversion provider.
Both methods provide tax-free cash you can spend in your retirement and they both allow you to remain in your home until you go into residential care or pass away. The fundamental difference is that, if you opt for home reversion, you will no longer own all of your home. A lifetime mortgage lets you retain full ownership of the property.
Is a home reversion plan a good option for you?
Once you’ve got your head around the differences between the types of equity release available, you need to take a more in-depth look at the plan that might be your best option. There are various advantages and disadvantages to home reversion plans and you need to consider them carefully.
Advantages of home reversion
You can guarantee an inheritance – you’ll know the precise percentage of your home’s market value that your family will inherit.
Unlock a tax-free lump sum – the money you release can be spent in any way you please.
No monthly repayments – the provider gets their money when the house is sold.
You can move home – home reversion plans are usually portable, meaning you can relocate and take the plan with you.
Gain from house price rises – if you still own a percentage, you can still benefit from increases in the value of your home.
Protection against price drops – since all or part of your home is already sold, any drops in house prices won’t affect you or your estate on the percentage already sold, unlike with a lifetime mortgage.
Plan for inheritance tax – home reversion could mean your estate doesn’t meet the threshold for inheritance tax (seek expert advice).
Disadvantages of home reversion
It’s expensive to reverse – if you change your mind, buying back the share you sold will mean paying for the full market value rather than the discounted rate you sold it at.
Your family may miss out – if you go into residential care or pass away soon after you take out a home reversion plan, all or part of your home will have been sold below market value. This could impact the value of your estate more than if you still owned the home fully, as your family could sell it for the full market value.
No benefit from house price rises on the percentage of the property you sell.
If you sell 100% of the property, you won’t leave anything behind for your loved ones and the option of unlocking more cash later will be gone.
You no longer own 100% of your home.
It’s only available for people aged 65+ – lifetime mortgages can be taken out at 55.
Equity release schemes may have triggered alarm bells in your mind in years gone by. You will be reassured to know that equity release is now fully regulated and supervised by the Financial Conduct Authority (FCA). Any equity release provider that can be trusted will be a member of the Equity Release Council (ERC) which sets very high standards that its members must adhere to.
Speak to an expert about equity release
Think Plutus do not offer home reversion plans as a service. However, we can provide expert advice on equity release to help you find what your best option is. We have a wealth of experience and access to the full market of financial products, so if you want to release equity then let us help you make the right decisions. Contact us today to speak to a specialist equity release adviser and we will set you on the right path. For equity release advice you can trust, Think Plutus.