Home reversion plan or equity release?

There are two types of equity release schemes to choose from: a Lifetime Mortgage or a home reversion plan. However, home reversion plans make up less than 1% of the equity release market and they don’t offer as much benefit to you as a Lifetime Mortgage can.^[1]

What is a home reversion plan?

A home reversion plan is a type of equity release product which involves selling all or part of your home to a specialist provider in exchange for tax-free cash. This will be at a significantly lower rate than your home’s market value, as the provider will allow you to remain living there rent-free. The money can be received in either a lump sum or in a series of monthly payments.

How does a home reversion plan work?

Releasing equity through a home reversion scheme allows you to access the equity built up in your home by selling all or part of your home to a specialist provider, meaning your home will belong to someone else, but you can carry on living there rent-free in return. The amount of cash you may receive is determined by your age, the value of your home and sometimes your health.

There are no repayments required and there is no interest charged on the money as it is not a loan, you’re selling all or part of your home. Once the last homeowner has died or gone into permanent care, the house will be sold. Profits will be split between the lender in line with the percentages originally agreed and the homeowner’s inheritors.

What are the advantages and disadvantages of home reversion plans?

It’s important to do your research and carefully consider your options. For most people the risks of a home reversion plan outweigh the benefits. Therefore, Responsible Equity Release don’t offer home reversion plans.

Home reversion plan benefits:

• The older you are, the higher the amount of cash you will usually receive.
• The cash you receive is tax-free.
• There are no interest charges on the money received.
• You can remain living in your home rent-free.
• You can guarantee an inheritance as the percentage sold is a chosen fixed amount – unless you sell 100% of your home.

Home reversion plan risks:

• You will no longer own 100% of your home. Homeownership will be transferred to the home reversion plan provider unlike a Lifetime Mortgage whereby you maintain full homeownership.
• Releasing equity from your home will reduce the value of your estate, affecting the amount of inheritance you may leave. This is also the case for a Lifetime Mortgage.
• You will sell your home for less than its market value to protect the provider from any shortfall.
• As with all financial solutions that involve releasing a cash lump sum, your entitlement to means-tested benefits might be affected.
• If you want to buy back the portion of your home, it can be costly.

What’s the difference between a home reversion plan and a Lifetime Mortgage?

Home reversion plans differ from Lifetime Mortgages in many ways. A Lifetime Mortgage is the UK’s most popular form of equity release. Learn more about the pros and cons of a Lifetime Mortgage here or use our free calculator below to find out how much tax-free cash you could release.

Am I eligible?

It’s important to know that you cannot take out a home reversion plan if you are under 55. These age limits are true to all equity release products, including a Lifetime Mortgage.

The benefit of using a Lifetime Mortgage product over a home reversion product then would come in the flexibility that they offer. At Responsible, we will only advise on products from lenders that are members of the Equity Release Council, so that you will benefit from a variety of features including a no-negative-equity guarantee. This ensures that you can never owe more than the market value of your home.

You can use the free equity release calculator on this page and discover how much you could release with a Lifetime Mortgage.

Ready to start your Responsible journey now, or want some more information?

To find out more about equity release now, why not get in touch with the UK-based Information Team on 0800 048 5384. They can provide you with more information on Lifetime Mortgages and help you to book a no-obligation appointment with one of our fully qualified advisers.

Sources:

1. [1] https://www.equityreleasecouncil.com/news/12319/