What is a home reversion plan?
A home reversion plan, also called a home reversion scheme, is one of two types of equity release. It is a method of accessing money in later life when other borrowing methods may be no longer available to you.
How does a home reversion plan work?
A home reversion company will buy a percentage of your property for below its full market value. The money can be paid out as a tax-free lump sum, drawdown – or both.
The homeowner(s) can usually continue to live in their home as normal and without paying any rent to the home reversion company, however there are some home reversion companies who may charge rent.
Once the homeowner or last surviving homeowner moves out of the property – usually into residential care – or passes away, the property is usually sold and the home reversion company will receive their share of the sale proceeds based on how much of the property it owns.
How To Get A Realistic Quote
Finding an accurate equity release quote can be tough.
After lots of research, I’ve found that Age Partnership’s calculator works particularly well.
I did the whole thing under 60 seconds.
You can see how much you could release below.
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Do you pay interest on a home reversion plan?
No, the money you receive when you sell part of your home as part of a home reversion plan isn’t subject to interest.
Interest is only applied to the other type of equity release called a lifetime mortgage.
Who can get a home reversion plan?
Home reversion plans are exclusively available to homeowners who are at least 65 years old. If you own the property with a partner, they will also need to be 65 or older.
If you own your home but haven’t quite paid off you mortgage, you can use your home reversion plan to pay off what’s left. The same goes for any debts you have that are secured against your home.
The home reversion company will find a surveyor to carry out checks on the property to ensure it has been built to regulations and to ensure it isn’t prone to depreciation.
There can be aspects of a property that can stop you from getting approved for a home reversion plan, such as a risk of flooding or too much of the roof being flat.
How much can I borrow with a home reversion plan?
The amount you can borrow with a home reversion plan will depend on the value of your home, what size share the company is willing to buy and how much the company is willing to pay for the share.
All of these things can vary between homeowners and lenders, making it difficult to determine exactly how much you could borrow. You may want to use individual company home reversion plan calculators for greater insight.
Benefits of a home reversion plan
The main benefits of a home reversion plan are:
- You access a lump sum or drawdown loan, which may be a significant amount
- The company cannot force you to sell your home while you still live in the property
- The money can be used in a variety of ways. It’s often used to improve the standard of living in retirement
Worried You’ll Be Rejected?
If you’re worried about your equity release application being rejected, the best thing to do is to get a free confidential quote.
Age Partnership have a simple online calculator that can give you an idea of what you could get.
It’s totally free to try and only takes about 60 seconds.
In partnership with Age Partnership
Risks of a home reversion plan
One risk of using a home reversion plan over a lifetime mortgage is if you take out the plan as a sole homeowner and pass away suddenly, ownership of your home could be lost.
The reversion plan provider would be able to recover the debt as soon as you pass away, making them a considerable profit in a short period.
In contrast, if you were to pass away as a sole homeowner soon after taking out a lifetime mortgage, the interest wouldn’t have caused the debt to grow as significantly, leaving your loved ones with a greater value of an inheritance.
Another drawback of using a home reversion plan is that you won’t be able to pass on your property to loved ones when you die.
Home reversion plans are generally much more expensive than lifetime mortgages.
What are the best home reversion companies?
The equity release market is relatively small compared to other methods of borrowing. Home reversion plans are usually offered by specialised home reversion and equity release companies.
There isn’t a single best home reversion company for everyone because individual needs and preferences will vary. It’s worth noting that the equity release adviser will recommend which home reversion company to use based on your personal circumstances and needs. However, you can read our guide on home reversion companies to help give you an idea of what to expect.
Is a home reversion plan right for me?
You must receive equity release advice before deciding to use a lifetime mortgage or home reversion plan. An equity release adviser will be able to help you work out if this is the right method of borrowing for you.
Some people avoid using a home reversion plan because these schemes have been given a bad reputation in the past. But the industry has a better reputation today. One of the big considerations when using a home reversion plan is how it will affect your estate and its beneficiaries.
If home reversion isn’t for you…
If you decide that a home reversion plan isn’t right for you, or if an independent financial adviser suggests you don’t use it, there can be other ways to borrow in older age. This includes the option of using the other type of equity release – a lifetime mortgage.
If you want to know how lifetime mortgages compare, head back to our equity release hub and select our lifetime mortgage page!
Home reversion plan vs lifetime mortgage
Lifetime mortgages are more popular than home reversion plans.
There are some key considerations when choosing between a lifetime mortgage and home reversion plan.
One of them is the cost of these equity release plans if you were to pass away suddenly.
If you were the last remaining applicant, the debt won’t have grown as much through compound interest.
However, if you were to pass away quickly after using a home reversion plan, the company would still be entitled to all of the share of your property that it purchased.
You might be concerned about the compounding interest rate of a lifetime mortgage. But one security with a lifetime mortgage is the no negative equity guarantee. This ensures that the your estate will never pay back more than what their property sells for.
STOP. It’s tough to find an accurate equity release quote.
Your age and property value impact how much money you get through equity release.
Age Partnership have a free calculator that can give you you a quote of how much you could release.
Try it below for free, it takes under 60 seconds.
In partnership with Age Partnership
Free home reversion plan calculator 