Home reversion is a type of equity release, but unlike lifetime mortgages which are loans, home reversion plans involve selling a percentage of your house to the plan provider in exchange for a cash lump sum. The demand for home reversion plans seems to have declined in recent times, and this may be due to the potential risks and dangers associated with them. The availability of more flexible and safer equity release schemes has also contributed to this decline.
Let’s look at some of the main concerns related to home reversion plans.
In a home reversion plan, you sell a portion of your house to the provider in exchange for a cash lump sum. However, the home reversion provider typically buys this at a highly discounted price, and not at the current market value of the property.
Home reversion plans offer poor value for money in case there is significant value appreciation. The amount you receive for the percentage you sell is not the market value, and when the plan ends and the house is sold, you or your estate does not benefit from any property appreciation on the percentage sold to the home reversion provider. Home reversion is therefore an unattractive option for most, when the property market is on an upward trend.
A home reversion plan can potentially go on until you die or move into long term care, which is when the house is sold. However, should you wish to end the plan early, you will need to buy back the percentage of the house that you sold at full market price from the provider, although you sold it at a highly discounted price. There may also be significant penalties or charges for early closure of the plan.
If you die early, your beneficiaries lose a significant financial asset, your house, in exchange for very little. However, some home reversion plans do offer rebates in case of early death.
Although you lose full or part ownership of your house, you are still responsible for the maintenance and upkeep of the property. Also, if the house is not in satisfactory condition after the plan ends, any costs of repair will be taken from your share of the equity which would otherwise have gone to your estate.
Losing ownership of the house in home reversion plans can be a cause of great unease for many people. Although you retain the right to live rent free in the house, you are no longer sole owner of the property. This means that the inheritance you leave behind will not include your home.
There are some significant disadvantages related to home reversion plans. While they can prove to be a suitable solution for some people, there are many factors to consider. It is important to seek advice from a professional financial expert before taking any final decisions.Tags:Equity Release Schemes, Home Reversion, Home Reversion Plan, Home Reversion Plans, Home Reversion Provider, Lifetime Mortgages, Long Term Care, Plan Provider, Professional Financial Expert, Type of Equity Release