Is Home Reversion a Good Way to Pay Off My Debts?

Releasing equity from your home is an important decision, and as such, all care must be taken to understand the implications of any scheme or plan fully before signing up for it. Equity release plans are generally near impossible to undo once you have signed the contract, so it is important not to rush into any decisions simply to repay outstanding debts.

Home reversion allows you to sell a portion of your house in exchange for a tax free cash lump sum. Although you lose sole ownership of the property, you have the right to live there rent free until you die or move into long term care. There are no restrictions on what the money can be used for, and because it is tax free, you receive the entire amount. Home reversion thus allows you to have access to a significant lump sum which is not a loan, and so this amount could effectively be used to pay off outstanding debts.

However, the downside to accessing this equity is the fact that you lose ownership of the percentage of the property that you sell. While the home reversion provider purchases a portion of your house at a highly subsidised rate, in the event that you choose to buy back your share from the provider, you are required to do this at the full market value, which becomes virtually impossible for most people.

The plan ends when you die or move into long term care – and the home reversion provider takes their share from the sale value of the house. This also means that in case your house appreciates in value over time, you cannot benefit from this appreciation on the percentage that you sold. Like any other equity release scheme, home reversion has important implications for you and your estate, so it is important to consider these carefully.

Although a lifetime mortgage is a loan, you can still consider it as an option to pay off any outstanding debts. There are flexible lifetime mortgages available today, such as interest only lifetime mortgages that allow you to maintain a level balance on your loan. By using an interest only lifetime mortgage to pay off your debt, you can then make regular interest payments and maintain a level balance on your mortgage. This way, you can still retain full ownership of your home, know exactly how much you will owe on your mortgage at the end and also benefit from any price escalation on your property.