Home reversion offers a solution for those who do not want to sell their house and move out, but want to access the value built into their home all the same. It creates a way to transfer ownership of the house in part or full, in exchange for a cash lump sum. This lump sum can then be used by the client in any way they like. Most significantly, it allows you to continue to live in your house rent free for as long as you live.
As opposed to lifetime mortgages, home reversion plans do not involve taking out a loan. Home reversion providers purchase a percentage of your property in exchange for cash. However, this is not a traditional purchase – as the provider cannot take possession of the house nor sell it in order to recover their money. The home reversion provider therefore has to make sure that the tax free lump sum they pay is secured.
The provider wants to ensure at all costs that they will not incur losses when the plan ends. By giving full market value of their share of the property now, the provider will be taking a risk against future market depreciation. In order to secure themselves against such losses, home reversion providers by default offer a highly discounted price for the property.
In general the shorter the term of any loan, the less the risk involved for the lender. And although home reversion plans do not involve a loan, they do involve recovery of the provider’s money. As such, the shorter the expected term of the home reversion plan, the more value the provider can offer for their share. This means that all other things being equal, the greater the age of the applicant, the more they are generally able to release for the share.
A home reversion plan differs greatly from a traditional sale of property. A key difference is the fact that although you transfer ownership in part or full to the home reversion provider, you retain the right to live in the house, rent free, for as long as you live, or until you move into long term care. This is a significant advantage over selling the house and moving out in order to access the equity in the house and must be taken into consideration when calculating the value of the share you sell.Tags:Home Reversion, Home Reversion Offers, Home Reversion Plans, Home Reversion Providers, Lifetime Mortgages, Long Term Care, Tax Free Lump Sum