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What is a home reversion scheme?

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 26th June 2019 *

The ‘original’ equity release schemes, Home Reversion Plans have now been almost entirely superseded by more flexible lifetime mortgages. Tighter regulation has led to fairer deals for customers in recent years, however, and everyone’s situation is different - so we still get a few queries from homeowners looking to explore this type of Equity Release in later life.

If you’re considering home reversion as an option, this article is intended to set out the facts about these plans including what they are, how they work and how they differ from other types of equity release, to help you make an informed decision.

In this article, we’ll cover the following:

There remains a small market for Home Reversion Plans in the UK, with only two dedicated companies currently providing this option. Both can consider applicants in a range of circumstances, but for the right advice, we suggest you speak to one of the expert advisors we work with to discuss your individual case. Alternatively, you can read more about retirement mortgage options here.

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Home reversion plan definition: What is a home reversion plan?

A home reversion plan is a form of equity release that homeowners can use to raise large cash sums or obtain regular income after retirement.

How does a home reversion plan work?

In contrast with other forms of equity release, home reversion requires the original owner to sell up to 100% of their property to the provider. From this point, the original owner of the property becomes a rent-free tenant.

‘Security of tenure’ is assured when the plan is put in place by means of a lifetime tenancy agreement, meaning that even after the homeowner sells part or all of their home to the provider, the firm guarantees their right to remain in the property rent free for the rest of their life - however long that may turn out to be!

A home reversion plan is tax free in that no tax is due on the lump sum when you receive it from the provider. Furthermore, the provider will pay any Stamp Duty due on the initial amount released during home reversion. 

See the FCA definition of a home reversion plan here for more detail.

Home reversion plan vs lifetime mortgage

The crucial difference between home reversion and lifetime mortgage is that with a lifetime mortgage, borrowers still own 100% of their property. This has some obvious benefits (both psychological and practical) so why might you choose home reversion instead?

Advantages of home reversion plan

The advantages of home reversion equity release can be summarised as follows:

  • You can live in the property rent free for life.
  • If you opt for partial reversion (e.g. 50%) and put the remaining 50% in your will, your beneficiaries’ inheritance is ring-fenced and they receive a guaranteed 50%.   
  • Larger lump sums may be more readily available when compared with other types of equity release - particularly for older borrowers or those in ill health.
  • No interest is payable to the mortgage company at any time, because you haven’t taken out an additional loan, but simply sold them an asset.

Disadvantages of home reversion plan

  • You will no longer own your home (if a full home reversion) or ...
  • You will own only part of your home (if a partial home reversion) meaning you could lose substantial equity.
  • Despite giving up your legal rights to the property, you are still responsible for its maintenance and upkeep.
  • You could lose access to certain state benefits.

The pros and cons of a lifetime mortgage are set out in detail in our article.

How much equity could I release with a home reversion plan?

The amount you can access will depend mainly on the value of your home when you agree to sell it (or part of it) to the provider, but also to your age and state of health. As a rule of thumb, the older you are, and the worse your state of health, the more money you can access.

However, under a home reversion scheme even if you sell 100% of your property, the provider will be buying it at a discount. This means you could only receive 25-50% of its actual market value, which could be an issue for those with beneficiaries to consider.

Home reversion plan examples

For example, if your home is worth £100,000 and you sell 100% to the home reversion firm using a home reversion plan, you could get between £25,000 and £50,000 in cash. Any increase in the property’s value following the sale will benefit the provider only, since you and your estate no longer have any legal claim to it.

With a lifetime mortgage, however, the property is sold upon your death, paying off both the sum borrowed and the interest accrued. This is guaranteed even if your property’s value has decreased - but if it has increased in value, this gain is credited to your estate and can be distributed to your beneficiaries.

Home reversion plan calculators

To get an idea of the amount you could release using a home reversion plan, you might want to start by using a home reversion plan calculator which will allow you to estimate your likely lump sum value based on your current circumstances.

A home reversion calculator generic equity release calculators may give you a ballpark figure, but to get more insight into the best possible deal for your circumstances, we recommend speaking to an advisor with experience in this relatively specialised area. We work with several that are experts in the field, and will be happy to guide you towards the best home reversion deals.

Eligibility criteria for home reversion plans

To be eligible for a home reversion plan you will usually need to own a property valued at £80,000 or more and be at least 55 years old.

The minimum age for many home reversion plans is 65 - and any age restrictions will apply to the youngest borrower in a joint application.

As with all types of financing there are some further factors that can affect your eligibility - read on to find out what they are.

Will eligibility be affected by my location?

Some home reversion providers only cover certain geographical areas, so you will need to check there is a suitable provider in your area. For example, one operates mainly in the area South and East of Bristol, plus parts of Birmingham, while another operates in England only (Not Channel Islands or Isle of Man).

Younger borrowers

As stated above, the usual minimum age for a home reversion plan is 65 or sometimes 55. This minimum applies to both applicants in a joint mortgage.

It’s impossible to access home reversion plans under 55 years of age, nor any other type of equity release - however you can apply for a second charge loan on your property if you’re under 55, have plenty of equity in your home and want to raise capital.

Health and home reversion

Home reversion can be a useful option for those needing to fund live-in care, and the good news for those facing this situation is that poor health can increase the standard lump sum size that the home reversion firm can make available to you.

Home reversion on non-standard properties

If your home is of non standard construction or has certain unique features, you are likely to find it harder to arrange a home reversion plan because reversion plan providers will want to be sure that the property is sellable.

Each mortgage company is slightly different in terms of what they’ll accept as a ‘standard’ property, for example, one home reversion plan excludes prefabs and retirement homes, but will consider ex-local authority, whereas another home reversion scheme excludes all flats but will consider timber-framed properties and listed buildings.

Home reversion with multiple issues

If several of the issues affecting eligibility apply to you, you may find it harder to access home reversion products, however, the advisors we work with are used to negotiating on behalf of our clients and will be happy to help you find the best home reversion deals for you, even if you have several issues at once.

Home reversion companies

With home reversion making up just 1% of the market, it’s not surprising that home reversion providers are now few and far between.

In the case of several well known companies such as Legal & General and Aviva, home reversion plans were included in their equity release offering until fairly recently, but as these schemes fell out of favour, most have replaced them with lifetime mortgages and similar products.

As you can see, this is a highly specialised area with only a couple of providers still offering these products.  The good news is that the expert advisors we work with know who they are and can offer you the right advice for your circumstances.

Alternatives to home reversion

There are several alternatives to home reversion for older borrowers looking to raise capital, whether to fund care, help children to get on the property ladder, embark on renovation projects or just to enjoy retirement to the full.

These options include:

Home reversion is seen as a ‘last resort’ for many, so it’s worth exploring all these options fully if they apply to you, before making a decision.

Are home reversion schemes regulated?

Yes, despite what you might have heard about the ‘bad old days’ of home reversion schemes, the plans available today are regulated.

So, are home reversion plans safe?

Well, since they are regulated, this gives more protection to the consumer as well as certain entitlements that were not guaranteed before regulation.

For example, customers have the right to obtain a ‘no negative equity guarantee’, which means that they would not owe anything if the property goes into negative equity and the mortgage company cannot sell it for the amount released to the customer - it becomes the provider’s problem.

Who regulates home reversion schemes?

The home reversion market is regulated by Mortgages and Home Finance: Conduct of Business (MCOB) rules.

These are an official set of rules governing how all mortgage lenders are allowed to interact with borrowers in the UK, drawn up in 2003 by the Financial Services Authority (FSA), now known as the Financial Conduct Authority (FCA).

Which lenders offer home reversion plans?

The Bridgewater home reversion plan was once one of the most popular on the market, but the firm which offered it has since rebranded as Retirement Bridge and no longer offers new plans, only top-ups for existing customers.

This firm is not the only major player to have scaled back their home reversion products. Similarly, the Aviva home reversion plan is no longer available to new customers.

Crown home reversion is one of the few schemes still open to new customers, but most retirement mortgage brokers would recommend alternatives to home reversion, such as lifetime mortgages. It’s important to weigh up all of your options before proceeding with reversion - make an enquiry and a specialist broker will go over them with you.

Can I get a home reversion plan anywhere in the UK?

The minority of providers who specialise in home reversion plans in the UK are positioned to consider offering them in England, Ireland, Scotland and Wales.

Home reversion in Scotland work differently to in England due to legal system differences. There would be no lease in place, with the customer usually entering a co-ownership agreement with the provider instead.

It may also be possible to find home reversion schemes in Ireland, although specialist advice will likely be required as fewer mortgage companies operate in this territory in general, and the ones which do usually have postcode restrictions.

How do I carry out a comparison of home reversion plan rates?

Why not save yourself the legwork and have the advisors we work with do it for you? They are whole-of-market and can connect you with the right home reversion plan provider best positioned to offer favourable rates to a customer with your needs and circumstances.

This is a much better option than using online rates tables as they are not tailored to your individual profile as a borrower and they often give prominent placement to sponsored deals which may not be right for you.

Approaching the wrong providers comes with the risk of potential marks on your credit file as some lenders take a dim view of customers with too many hard searches on their report, but with the expert home reversion brokers we work with on your side, you can rest assured that you will be paired with the right provider first time.

Speak to an expert in home reversion plans today!

If you have questions or want to speak to an expert on home reversion plans, call Online Mortgage Advisor to speak to an accredited advisor on 0808 189 2301 or make an enquiry here. The brokers we work with can guide you through the application process and help you avoid the potential risks and pitfalls of home reversion plans.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 26th June 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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