What is a Home Reversion Plan?
With home reversion you are entitled to live in your property rent free until you die or move into care, but you have to agree to keep in insured and maintained to a good standard. At the end of the plan, the sale proceeds from your property are shared according to the percentages of ownership. Here, we answer the most-asked questions about Home Reversion plans…
How Does a Home Reversion Plan Work?
You sell all or part of your property to the lender (for less than market value) in return for a tax-free lump sum, which you can take at once or as an income. You will still be able to live in your home as a tenant, rent free, and there is no interest to pay as this is not a loan. The provider makes profit back on the difference between your loan value and the value of the share of your home when it is sold.
How Much Can I Get with a Home Reversion Loan?
The amount you get will vary according to your age and the value of your home. You can sell anything between 25%-100% of the property to the provider, and in exchange for that share you will get a percentage of the market value. Usually the older you are, the greater the sum. For example, at age 65, in exchange for a 70% share of the property you might obtain 25% of the market value. At 80, this may rise to 40-50% of the market value.
Who Regulates Home Reversion Plans?
Since 2013, home reversion plans have been regulated by the Financial Conduct Authority (FCA). The FCA exists to maintain confidence in the in the financial system, to ensure the UK financial system remains stable, to protect consumers, and to reduce financial crime. With home reversion plans, it means you should be entitled to a ‘no negative equity guarantee’, i.e. if your property does not sell for the amount borrowed, your estate or family will not owe more.
What to Bear in Mind with a Home Reversion Plan
If you use a home reversion plan to raise money against your property’s value, then you will need to remember:
- Getting a lump sum will affect your entitlement to benefits or state support, as you will now have a lot of cash in savings or as a regular income.
- Your house will no longer be part of the inheritance you can pass on to your family.
- The amount you receive will be considerably less than the market value of the share of your home that you sell.
- Should house prices increase, then you only see a benefit on the value of the share of the house you own.
- If you pass away or go into care soon after taking the plan, then it will not have been great value for money, as you will have not had much use of the house free of rent or interest payments.
