Home reversion plans have seen a marked decline in popularity in recent times. This could be due to a variety of factors, not least because newer, more flexible equity release solutions such as interest only lifetime mortgages are now available.
Home reversion plans were much more popular when the only alternative in the equity release sector was roll up lifetime mortgages. The interest that is charged on the loan in roll up mortgages goes on compounding, and this often leads to the loan amount quickly becoming unmanageable. Although no negative equity guarantees are now in place on all equity release schemes, you can potentially lose all the equity in your home to a huge roll up mortgage debt.
On the other hand, home reversion plans involve selling a portion of the house rather than taking out a loan. There is therefore no interest charged on the equity that you release through a home reversion plan. However, you do lose ownership of the share that you sell to the provider. If you exchange 100% of the property, you technically lose ownership of your entire house. This is in stark contrast to how the interest only lifetime mortgage scheme operates.
Social attitudes and trends are also not in favour of home reversion plans. Home reversion plans can also be difficult to understand for many people – for instance the fact that even if you sell 100% of the house, you can only get approzimately 50% of the tax free lump sum; and this can be difficult to deal with. Although you can continue to live in the house, people are increasingly becoming uncomfortable with the thought of losing ownership of their home.
Interest only lifetime mortgages have virtually changed the face of the equity release sector thanks to their flexibility. With interest only lifetime mortgages, the term of the mortgage runs until the end of one’s life, and you only repay the interest on the loan every month. This means that you can potentially maintain a level balance on your loan, and protect the equity in your home. Great for your beneficiaries. Interest only lifetime mortgages provide a more affordable and attractive option than home reversion, as people become more aware of the importance of protecting their financial assets.
The number of providers offering home reversion plans has reduced from eight providers in 2007 to just three recently following the withdrawal of the Aviva Home Reversion scheme which effectively was underwritten by Grainger Trust. While the reduction in plans has a direct correlation with declining demand, the lack of options in the home reversion sector also in turn contributes to decline in demand, making it a vicious cycle.
Tags:Aviva Home Reversion, Aviva Home Reversion Scheme, Equity Release Schemes, Equity Release Sector, Flexible Equity Release Solutions, Grainger Trust, Home Reversion, Home Reversion Plans, Interest Only Lifetime Mortgage Scheme, Interest Only Lifetime Mortgages, No Negative Equity Guarantee, Roll Up Lifetime Mortgages, Roll Up Mortgages