The home reversion plan has had a noticeable decline in recent years, mainly due to the rise in the popularity of new equity release schemes. The main culprit for their demise has been the introduction of newer style lifetime mortgage plans. In particular, you now have a range of lifetime mortgage schemes which are drawdown lifetime mortgage, enhanced lifetime mortgage and the interest only lifetime mortgage. For one reason or another these have become advocates in the lifetime mortgage market.
Home reversion entails selling some or all of your property to a reversion provider in exchange for a tax free lump sum. When you die or move into care, the provider is able to recoup their money when the property is sold. They receive their percentage that they own and your beneficiaries receive the percentage (if any) you didn't sell. This is attractive because there are no monthly payments like in the case of a residential mortgage or personal loan.
You are also able to protect your inheritance as you are only selling a portion of the property. A home reversion plan is only available to those who are over 65 years of age and with a minimum property value of £75,000 (Bridgewater Flexible Release Plan). However, there are more modern and flexible lifetime mortgages which are appealing more to the home owner. A variation to the ordinary lifetime mortgage is the previously mentioned drawdown lifetime mortgage.
A drawdown lifetime mortgage scheme offers you greater control over when to take your money as it can be taken in stages, rather than all at once. Instead of releasing all of your money at once like a home reversion plan, a maximum facility is created. This means that you are able to take a smaller amount at first and then drawdown when extra money is needed. Also, the interest that is charged is only charged on the amount that has been taken and not the entire facility.
You are able to apply for a lifetime mortgage at an earlier age compared to home reversion; usually they can be applied for at age 55 years. However, the maximum facility that you are able to form is usually smaller than the lump sum you would get from a home reversion scheme. You will be able to keep more equity in your property with a drawdown lifetime mortgage which can be a great advantage for any beneficiaries.
A problem with home reversion plans is that people are now more reluctant to lose full ownership over their property, as you have the right to live effectively in their part of the property for the rest of your life. Also, the reversion provider will not give you the full market value and you won’t benefit from any house price inflation on the portion of the house you sold.
Lifetime mortgages are therefore proving very flexible and there are many different types of lifetime mortgages on offer that will suit your lifestyle more easily. You exert more control with a lifetime mortgage and still remain the owner of your property, which is more appealing to many people nowadays.
Home Reversion Plans
• Retaining ownership of your home is done through a lifetime tenancy agreement that can include anyone living in the home.
• The provider may require anyone not 65 or older to sign a release of occupancy; it is an occupancy deed stating that the younger person gives up their right to remain in the house once you move on.
• You do not have a monthly payment, thus there is certain flexibility to use the money in more ways than just living expenses.
A drawback to lifetime mortgages is the loan you have out that must be repaid after you move out or move on. The loan will have interest added to it the longer you remain alive and leave the loan unpaid. It can become a costly scheme if your life expectancy is higher than you planned for. It can also put the inheritance in jeopardy.
Despite home reversion plans becoming unpopular, it is a good idea to remember the disadvantages of lifetime mortgage schemes while you consider which equity release scheme is most beneficial to you and your current financial situation since it can make reversion plans a more suitable option for some.
Nevertheless, do not forget the virtues of a home reversion as they still have a part to play in providing independent and complete equity release. Advice: - guaranteed inheritance & security of tenure for the rest of your life.