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What is a Home Reversion Plan?

The home reversion scheme is a form of equity release that is regarded as the best option as it allows you to basically sell all of your home instantly, or to sell only a small part of it to a home reversion provider in return for either the lump sum or regular payments via a reversion plan. With this plan option you can continue to reside in the property rent free until deceased if a maintenance and insurance plan is also agreed at the time of the initial equity claim. Ring-fencing a percentage of the cash for inheritance purposes is also an available option with home reversion but the equity percentage will always remain the same even if the property value increases. You can claim for further equity releases throughout the lifecycle of the plan and that is what makes home reversion a great choice of equity release for most. When the plan has ended your home is then quickly sold and the proceeds are divided between the current owners, i.e. you and the mortgage provider.

A home reversion equity release claim can be made by homeowners over the age of 55, and once the application has been confirmed the money is then released by the mortgage provider either as a large lump sum, or in several smaller amounts. It will usually depend on the claimant’s personal circumstances to which payment plan is chosen and to determine what type of payments can be received.

Beneficial features of home reversion

  • Selling all, or only a part of the property to the plan provider allowing for a lump sum or regular payment option. The possible income that you can receive ranges from 20%-60%.
  • The right to reside in the property makes this form of equity release a viable option for those who want an equity plan that is hassle-free. Moving home can be demanding and it can affect working life, etc. Therefore, receiving funds from your home whilst still living in it can have major benefits to an individual’s circumstances.
  • Possible reversion plan that includes future family inheritance options if the claimant opts in for that aspect.
  • The home reversion plan can be transferred if you decide to move to a new home.
  • Benefit of fixed interest rates throughout the lifespan of the loan. The claimant can also change to variable rates if needed.
  • A variety of payment plan options which can make the mortgage less costly and financially demanding.
  • Equity from home reversion immediately boosts personal finances.
  • Increased equity payments as the individual gets older.

Unbeneficial features

  • Equity release can be more expensive than an ordinary mortgage.
  • The home reversion plan may not provide the true market value of the property.
  • The money that is received as equity may affect your current entitlements to social security and other governmental benefits.
  • Long-term payments can become demanding if circumstances change for the worse.
  • Arrangement fees are included in home reversion and these fees can reach as high as £3000. The total amount will usually depend on the actual arranged plan from the equity provider.

Covering the beneficial and unbeneficial features of home reversion early will help you to understand all of the factors involved in this form of equity release and provide answers to certain questions you may have about the lifetime mortgage, or the home reversion scheme.

Important equity release questions may include:

  • What is the minimum age of applicants? The home reversion scheme has different plans and some providers may insist that you are 60+ before the claim is met.
  • Is this the plan that is best for you? Figuring out your current and forecasted financial circumstances at the start will help you to realise what plan is the best option.
  • What percentage of the market value will be offered to the claimant? Mortgage providers are very competitive therefore researching plans and realising the true value of the equity released at the earliest possible stage will be of great benefit to the applicant. (Remember payments will vary but will also increase as you age with the home reversion plan.)
  • Does the equity release claim include a right to transfer it to another property if you decide to move address? This provides security that the loan will not change its interest rates unexpectedly and negatively affecting your financial predicament.
  • What level of maintenance will you need to agree to when applying for a home reversion plan? Upkeeping and upgrading your home is paramount, but there may be extra associated tasks that you are not aware of hidden in the small print of the equity contract.
  • What is the total cost of the insurance plan’? The home reversion scheme must be insured before equity can be released. Calculating all the related costs at the beginning will help to avoid unexpected financial outlay.
  • Does the plan provide a ‘no negative equity guarantee? Homes can be quickly sold by mortgage providers, and there may be extra costs to pay to solicitors and other agents involved with the claim. If the guarantee is included it means that even if the extra fees must be paid, the applicant will not be liable to pay.

Information that must be provided when applying for home reversion

  • Your current age
  • If you are working or on benefits at the time of claim
  • Your overall annual income
  • How much money you wish to release from the sale of your home
  • Your future plans and expected financial circumstances

When applying for equity release and a home reversion plan in particular you will receive an immediate payment that can significantly boost your bank balance. But it is important to remember that home reversion is considered as a high-risk product, therefore it is important to fully research the finer details associated with equity release from different mortgage providers and to obtain the help from a financial professional with your application to ensure that the correct information is provided when the initial claim is made.

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