An obvious, albeit difficult way to release the equity in your property is to sell it and move out, and equity release offers a more convenient alternative to this. Home reversion is a type of equity release, but unlike lifetime mortgages, it does not involve taking a loan out against the property.
Home reversion involves transferring ownership of a percentage of the property to the provider in exchange for tax free lump sum cash. Although ownership of the property, either in part or full depending on how much you sell, is transferred to the provider, you retain the right to live rent free in the house until you die or move into permanent care.
Most home reversion lenders allow maximum release by selling 100% of the property, but this is an option and not mandatory. There are currently three providers that offer home reversion schemes which are Newlife, Bridgewater,and Hodge Lifetime. Each plan has its own terms and features. All current home reversion schemes are available for applicants over 65 years of age.
One of the main attractions of home reversion is that because the money you receive is not a loan, there are no monthly payments or interest payments to be made. The provider recovers their money when the property is sold and they get their share of the sale value – which is the percentage they own.
For instance, say you own a property that is currently valued at £100,000. You sell 50% of the property to the home reversion provider in exchange for a tax free lump sum. You receive the lump sum, and are free to use it for whatever purpose you like. Although 50% ownership of your house now belongs to the provider, you retain the right to live in the house rent free, until you die or move into care. When the house is sold, the provider receives 50% of the sale value of the property.
While you do have the option to sell 100% of the property, this is not mandatory, and the minimum percentage that can be released is much lower. This allows you to sell only a small percentage of your house and retain a share in any appreciation in the value at the end of the plan. This also makes is suitable for those who wish to protect their inheritance.
Like any other financial product, home reversion too has pros and cons. While it may not work for some people, it may provide a useful solution for others. However, the fact is that home reversion plans have seen a steady decline in popularity in recent years. This may be due to the availability of more modern and flexible lifetime mortgage plans. It may also be because people are becoming increasingly wary about losing ownership of their house.Tags:Bridgewater, Equity Release, Equity Release Offers, Flexible Lifetime Mortgage Plans, Hodge Lifetime, Home Reversion, Home Reversion Explained, Home Reversion Lenders, Home Reversion Schemes, Lifetime Mortgages, Newlife, Type of Equity Release