A home reversion scheme can be a great option if you want to take advantage of an equity release scheme but have overall concerns about the interest you accrue and the potential inheritance you could leave behind to loved ones. A home reversion plan has similarities to lifetime mortgage schemes but does not function as a loan.
What is a home reversion scheme?
A home reversion scheme is an equity release scheme that functions a bit differently than some of the more traditional options. With this particular scheme, part or all of your home is sold to the equity release provider in exchange for a cash payment. That payment that is made to you is tax-free and you receive it in one lump sum payment. You have complete autonomy over how you spend the money, with no restrictions. Take it and use it for holiday, pay down debt, or make a large purchase you have been putting off for when you had more cash.
You are able to stay in your home for the rest of your lifetime and you do not need to make any rental payments to the lender.
How does a home reversion scheme work?
Home reversion schemes are no longer very popular, given the rise in popularity of lifetime mortgage products, but they do still offer some benefits. In fact, the benefits that once made them very popular still exist.
With a home reversion plan, you receive a cash lump sum that you can spend however you want. In exchange for the cash payment, the lender gets a proportion, or all, of your property. The lump sum that you receive will be less than you would receive if you actually sold the property outright because you are able to stay in the home until its eventual sale.
With a home reversion plan, you aren’t charged any interest and the percentage of the home that you sold will remain the same until the end of the plan term. The plan term ends when either the last remaining homeowner moves into long-term care or passes away. At that time, the home is sold and the proceeds are distributed based on the percentages of ownership. So, if you sold 30% of the home, when the home is sold, 30% of the proceeds will go to the lender. Any money that was your share that is left over after the sale, if any, will be distributed to your beneficiaries.
Benefits
There are several benefits to taking out a home reversion scheme:
– You can stay in your home indefinitely without having to make any rental payments to the lender.
– You will continue to benefit from any increase in the value of your home if you retain some percentage of ownership
– You don’t need to pay any interest with this plan because it is not considered a loan
– You can safeguard some inheritance for your loved ones
Drawbacks
Similar to other products, there are also drawbacks to a home reversion scheme. Some of them include the following:
– You will not receive the full proceeds when your home is eventually sold
– You no longer are the sole owner of your property
– While you can safeguard some inheritance if you wish, the amount you leave behind to loved ones will still be impacted
– Using this scheme could impact your means-tested benefits
How much can I receive?
There are a few different factors considered when a provider is determining how much capital you will receive. These factors include:
– Your age, or the age of the youngest homeowner if there are two. You must be at least 60 years old to qualify
– The percentage of the home sold to the provider
– The value of the home, which must be at least £80,000
– The overall health of the homeowner(s); if unhealthy, you are likely going to receive a bigger cash payment given that your life expectancy will be less.
If you want to review how much capital you might be able to receive through a home reversion plan, you can reach out to us for a detailed review. Our trusted advisers are well-versed in these particular plans and can help you determine if a home reversion is the right fit for your particular needs.