Home Reversion Schemes

How Home Reversion Schemes Work

This scheme involves the selling of your home, or part of your home to a home reversion company, in exchange for a lump sum and/or ongoing regular income.

You also receive the right to continue to live in your home as a tenant, rent-free, or for a small nominal rental charge, for the remainder of your life.

Upon your death, when your home is sold, the home reversion company who now owns your home will take its share of the proceeds, in exchange for any lump sum and/or income which has been paid to you during your lifetime.  The amount taken by the home reversion company when the house is sold will depend on its share of ownership, not the original loan amount, as with lifetime mortgages.

You can sell up to 100% of your home.  However, you will not receive the full market value of the share of your home sold to the home reversion company.  The amount retained by the home reversion company is in exchange for you retaining the right to continue living in your home for years to come.  The amount retained will therefore depend on your age (amongst other factors) since this will affect how long you are continue living at the property, and ultimately how long the reversion company will have to wait to get a return on its investment.

Typically, you can expect to receive between 30% and 50% of the value of your home from such schemes.  Depending on your circumstances, you may be eligible to receive up to 60%.  Only in rare circumstances will you be able to release more than 60% of the value of your home.  The actual amount you can expect to receive depends on your personal circumstances.

Although ownership passes to the home reversion company, you remain responsible for maintaining the property to a reasonable standard.

Advantages of Home Reversion Schemes

No repayments during your lifetime.  All money is recovered by the reversion company following your death. It is agreed upfront what share of the proceeds from sale of your home after death will pass to the reversion company, and what share will pass to your next of kin.  Unlike lifetime mortgages where the interest rolls up into the loan amount to be repaid on death.

If you keep a share of ownership of your home, you will benefit from any future house price rises.  Also, any falls in the value of your home of will be borne in part by the home reversion company.

You can sell a greater share of your house in future, via other home reversion schemes, to raise further cash.

Bad habits or poor health such as smoking/obesity, can result in larger payouts.

In general, larger payments can be achieved through this type of scheme than under lifetime mortgages.  This may suit people who have an outstanding mortgage on their property, which would have to be paid off using the proceeds of an equity release scheme.

You may still be able to move to a new property in future, assuming you have the permission of the lender and there is sufficient equity remaining in your home.  An IFA can provide more details on this.

Disadvantages of Home Reversion Schemes

You will only receive a percentage of the actual market value of the share of your home you sell.  The difference is retained by the reversion company under the home reversion scheme, in exchange for you retaining the right to live out the rest of your life in the house.

If you die soon after entering into a home reversion scheme, and if you were relatively young when you joined the scheme, you potentially lose out because you will have sold a share of your house cheaply, and did not take advantage of your right to continue living in your house.

This type of equity release scheme may not be available to everyone, since companies offering home reversion schemes can sometimes be choosey about which properties they accept into the scheme.

You give up ownership, but remain responsible for maintenance of the property.  You also lose any rights over the property, associated with ownership.