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The Best Home Reversion Companies – Overview & Tips

best home reversion companies

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

What are the best home reversion companies in the UK? If you have received equity release advice and have decided to look for a home reversion plan, you will want to know what your options are. 

Unfortunately, there are not as many home reversion plan providers as there are lifetime mortgage lenders. But this guide will help you get your equity release search off on the right foot. 

What is equity release?

Equity release is a method for senior homeowners to release equity from their main residence through a loan, which can improve the quality of their retirement. All applicants must be at least 55 years old and own 100% equity in their home, meaning there should be no outstanding debts secured against their property. Equity release loans are unique because they enable borrowing with no monthly repayments

The debt is only repaid after the last surviving homeowner – who must also be named on the plan – has either died or moved into care. In either situation, the property will be sold to raise money and repay all of the debt. Any money left over from the sale proceeds is the homeowner’s to keep if they are still alive, or it is added to their estate. 

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Do you receive a tax-free lump sum?

When you use equity release, you receive tax-free cash. This can be a cash lump sum to the value of the loan, or it can be a drawdown facility. A drawdown loan provides an initial cash lump sum and leaves the rest of the money in a cash reserve with the lender, which can be accessed when the homeowner chooses. 

Taking a drawdown loan over a lump sum loan could offer several benefits, including the avoidance of unnecessary interest (lifetime mortgage only) or to maintain eligibility to receive means-tested benefits. It could be preferred just to help with retirement budgeting as well. 

What is the catch with equity release?

Using equity release to retire early or improve the quality of life within your retirement can sound like a fantastic idea. Without having to make monthly repayments, the chance that you will only repay after death can make equity release tempting. 

However, equity release is not an easy decision because the cost to repay the loan is much greater than the initial loan amount. No matter what type of equity release loan you use, most people should expect to pay back more than double the original loan amount when the time comes around. This could significantly reduce your wealth while living in a care home, or it will substantially reduce the value of your estate which your beneficiaries would inherit. 

What are the different types of equity release?

There are two types of equity release loans to choose from, but both of them can be accessed as a lump sum or regular drawdown loan. 

The most used equity release scheme is a lifetime mortgage, which charges interest on the loan amount but does not demand interest repayments either. The interest gets added to the total amount owed each month to create a bigger debt over time, which eventually gets repaid using the sale proceeds. There are a number of variations on the standard lifetime mortgage.

The second type of equity release scheme is a home reversion plan, which is the focus of this MoneyNerd guide. Read on to learn how a home reversion plan works and what home reversion companies are around in the UK today. 

How do home reversion plans work?

Home reversion plans provide the homeowner with a loan usually between 20% to 60% of the value of their home as long as they have no debts secured against the property. If they do have outstanding debts then they probably will not be able to apply.

This loan is not charged with any interest. The loan is cleared when the homeowner dies or moves into care, at which point the property will be sold and the lender will take a percentage of the property’s sale proceeds. 

The amount the lender takes to clear the debt is agreed right at the start of the loan, which could be years or even decades previous. The percentage that is taken from the property sale will be much greater than the percentage of equity released. For example, an equity loan worth 20% of the equity may cost the homeowner 60% of the eventual property value in the future. You might want to think of it as selling a share of your home in the future. 

Because property values tend to increase over time, this means the homeowner will end up paying back more than x3 the initial loan amount to clear the debt. It may be possible to repay the debt with cash from the estate and keep the family home. However, if the estate beneficiaries have to pay money into the estate to do so, there could be Stamp Duty applied.

What is a home reversion mortgage?

A home reversion mortgage is another name for a home reversion plan. You may also hear them referred to as a home reversion scheme or just reversion schemes. They all work as described above, although lenders may insert their own terms and clauses into credit agreements. Always read the fine print of any home reversion plan agreement. 

The pros and cons of a home reversion plan

The primary advantages of using a home reversion plan are:

  1. You receive tax-free cash
  2. Choose a lump sum or drawdown
  3. Spend the loan on whatever you need to or keep it saved
  4. There are no loan repayments to make
  5. Keep living in your home with no rent to pay

The main disadvantage of using a home reversion scheme is that you must give the lender a large part of your home sale proceeds in the future, which makes them very expensive to repay. The knock-on effect is that your estate beneficiaries will inherit less wealth when you die, and they won’t likely inherit the family home, which then reduces the inheritance tax threshold. 

There are a number of other drawbacks including:

  1. High early repayment charges to get out of the loan
  2. High set up costs
  3. Could stop your eligibility to receive some benefit payments

Is a home reversion plan a good idea?

A home reversion plan might be a good idea for you, but it will depend on your personal circumstances and any alternative options available. The way to make an informed decision is to get financial advice first. 

Do not just use any financial adviser, but opt for advisers who work frequently in equity release. You may want to give preference fro finance advice companies that are members of the Equity Release Council. 

Are home reversion plans regulated?

Homeowners should only consider home reversion plans that are offered by legitimate lenders and loan providers in the UK. This means ensuring that the company is authorised and regulated by the Financial Conduct Authority, which you can verify on the Financial Services Register. 

The Equity Release Council is another body that aims to improve standards of lending within the industry and to provide homeowners with additional protection when taking out home reversion plans or a lifetime mortgage. 

Lenders are not forced to become a member of the Equity Release Council but many do. When they joint they agree to follow a number of rules which benefit the senior homeowners, such as the infamous negative equity guarantee that stops lenders chasing debts not completely repaid via the property sale. However, this particular rule only benefits people who have a lifetime mortgage loan. 

Who are the home reversion providers (UK)?

At the start of our guide, we mentioned that home reversion plans are more difficult to find than lifetime mortgages. This is simply because more people choose to use a lifetime mortgage. Nevertheless, there are a couple of notable lenders offering home reversion plans, such as:

  1. Hodge Lifetime
  2. Crown Equity Release
  3. Newlife
  4. Bridgewater Equity Release

Always complete your own research at the time of reading, so you don’t miss out on changes in the industry and new deals. But remember to only consider those that are regulated by the Financial Conduct Authority. 

Start by looking at an equity release calculator

When you do find a home reversion provider you want to consider, check to see if they have an equity release calculator on their website. This will help you understand how much you could borrow and how much the loan will cost to repay using this specific reversion company. An equity release calculator is not entirely accurate, so take the information given with a pinch of salt. 

For more information on lifetime mortgages, reversion schemes and anything else to do with equity release, you’re already in the right place with MoneyNerd! 

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