A Home Reversion Plan is a type of equity release scheme available in the UK that allows homeowners, usually those aged 65 or older, to sell part or all of their property to a reversion company in exchange for a lump sum payment or regular income, while retaining the right to live in the property rent-free for the rest of their lives or until they move into long-term care. Here’s a detailed explanation of how a Home Reversion Plan works:
How Home Reversion Plans Work:
- Eligibility:
- Home Reversion Plans are typically available to homeowners aged 65 or older, although some providers may have different age requirements.
- The property must be the homeowner’s primary residence and have a minimum value, usually around £70,000 to £100,000.
- Sale of Property Share:
- The homeowner sells a percentage of their property to a reversion company. The percentage sold can range from a small portion to the entire property, depending on the homeowner’s preferences and financial needs.
- The homeowner receives a lump sum payment or regular income based on the value of the share sold.
- Occupancy Rights:
- Despite selling a share of their property, the homeowner retains the right to live in the property rent-free for the rest of their life or until they move into long-term care.
- The homeowner is responsible for maintaining the property and paying property-related expenses, such as insurance and maintenance costs.
- Reversion Company Ownership:
- The reversion company becomes the co-owner of the property, holding the share that has been sold to them. They have a legal interest in the property and are entitled to a share of the property’s sale proceeds when it is eventually sold.
- Reversion Event:
- A reversion event occurs when the homeowner moves into long-term care, passes away, or chooses to sell the property. At this point, the property is sold, and the reversion company receives their share of the proceeds.
- If the property has increased in value since the Home Reversion Plan was entered into, the reversion company’s share of the proceeds will also have increased.
Pros and Cons of Home Reversion Plans:
Pros:
- Access to Cash: Homeowners can access a lump sum payment or regular income without having to sell their property outright or move out.
- Lifetime Occupancy: Homeowners can continue living in their property rent-free for the rest of their lives or until they move into long-term care.
- Fixed Share Sale: The percentage of the property sold to the reversion company is fixed, providing certainty about the future ownership structure.
Cons:
- Loss of Property Equity: By selling a share of their property, homeowners will receive less money from its eventual sale, potentially reducing the inheritance they can leave to beneficiaries.
- Property Appreciation: If the property increases in value over time, the reversion company’s share of the proceeds will also increase, reducing the amount available to the homeowner or their beneficiaries.
- Limited Provider Choice: Home Reversion Plans are less common than other equity release schemes, such as lifetime mortgages, and there may be limited providers and products available.
Conclusion:
A Home Reversion Plan offers homeowners aged 65 or older a way to access cash from their property while retaining the right to live in it for the rest of their lives. By selling a share of their property to a reversion company, homeowners can receive a lump sum payment or regular income, providing financial flexibility in retirement. However, it’s essential for homeowners to carefully consider the implications of entering into a Home Reversion Plan, including the loss of property equity and potential impact on inheritance, before making a decision. Consulting with a financial advisor or equity release specialist can help homeowners assess their options and make informed choices about their financial future.