Equity Release
How to use a home reversion plan
Home reversion schemes are an alternative method of releasing equity from your property to help finance your retirement.
With reversion schemes you sell a proportion of the value of your home, usually between 30% and 60%, in return for a cash lump sum or an income.
You are guaranteed to be able to stay in the property rent-free, and the reversion scheme provider cannot sell the property until you die or go into long-term care.
The older you are when you take out a reversion scheme, the higher the proportion of its value you will receive – they are generally not judged to be the most suitable products for those under 70 years old.
How much will I get?
The amount you receive will be less than the value of the proportion you have sold. So, for example, if your home is worth £200,000 and you sell a 50% share in it you will receive less than £100,000.
Pros and cons
Home reversion plans are relatively high risk and not hugely popular as a result. they can impact seriously on your tax position, the benefits you qualify for, the inheritance you leave and your longer term tax planning.
It always makes sense to speak to an independent financial adviser before signing up to a reversion plan,or indeed any kind of equity release product, and it can also make sense to take legal advice. Most people also choose to involve or inform their family.
If you need to boost your income with a lump sum or extra income, but don;t want to downsize, and you do not need your family or others to one day gain the full value of your property, a home reversion may be worth considering.
But you must be aware of the downsides mentioned above. Also bear in mind that you will still have to pay for the upkeep of the property and you may be liable for other costs, such as ground rent, depending on what is stipulated in your lease.
Costs and feew
You may have to pay:
- an arrangement fee to the provider
- a valuation fee to determine how much your property is worth
- financial adviser fees – although free advice is also available
- legal fees – the terms of the lease must be scrutinised by a solicitor appointed by you
Questions to ask an adviser:
- How will taking out a home reversion affect your income tax position and your eligibility for state or local authority benefits?
- What conditions does the home reversion impose on you for continuing to live in your home?
- If you want a regular income how will you achieve it? Will the income be guaranteed? Will it be fixed or variable? How often and for how long will it be paid?
- Can you transfer the home reversion scheme if you want to move home?