Home reversion is one option you have to release equity from your home. The other is one of the various types of lifetime mortgages. The equity release industry tries to offer products that will fit a range of homeowners. To make certain there is a product for almost any homeowner, financial providers devised the home reversion plan. The earliest home reversion plan ever offered was released in 1965 by Hodge Lifetime. The product has changed slightly due to industry needs, as well as changes to financial regulations.
What is Home Reversion?
Home reversion is a property sale not a loan. Lifetime mortgages are loans that require repayment. This is the distinction between the two products and why the industry has created two options for homeowners. There are some homeowners who are not comfortable with a home sale, while others prefer it to having a mortgage in their retirement years. Home reversion is a retirement equity release product, which is another distinction over the various financial products on the market.
How Home Reversion Schemes Works
The homeowner decides if they will sell their entire property or only a portion of it. In return for making the sale, the homeowner is given equity funds in a tax free lump sum payment. These funds are not repaid and do not accrue interest. The home reversion provider is investing in the property. By investing in a long term property sale they are able to make money; however, it is not at the disadvantage of the homeowner.
The homeowner holds a lifetime tenancy agreement to their property, no matter the amount they sell. Even if 100% of the property is sold during the arrangement the homeowner can remain in the house until their death or a permanent relocation to a long term care facility.
• There is no loan to repay
• Funds are tax free and available
• If a portion of the home is sold the rest can be sold later for even more funds
• The funds can be used for most needs
• Ownership is transferred to an investor
• The sold portion of the property is not at full value
• The home is eventually sold to the provider in full, where they sell it for current market value
The disadvantage of not attaining full market value can be a big deal to some homeowners, who often elect for lifetime mortgage options instead. The reason full value is not offered is for the investment. A provider is willing to let the homeowner stay rent free for their life, which could be anywhere up to 35 more years. The only way to recoup the funds lent plus make money on the investment is to offer a lower percentage than the true property value.
The age of the homeowner is key. Qualifications begin at age 65 and most homes need a value of at least £70,000 to qualify; however, different providers have different qualifications. Overall, a homeowner who does not want to repay a loan and needs retirement funds to live comfortably can be satisfied with a home reversion option.
Require further information?
Use the form below to request further information about this, or any other scheme, and an FCA regulated independent equity release adviser will be able to assist you over the phone, face-to-face, or via email.