Home Reversion Schemes...

Home Reversion schemes are an alternative method of releasing equity from your property to help finance you in retirement.

This type of scheme allows you to sell part or all of your property to a provider in return for either a lump sum or income and a lifetime right to remain living in your property. You can sell up to 100 per cent of the value of your property, but you will only receive a heavily discounted sum of money which could be as low as 25% per cent of the current market value at age 65 rising to typically 60% at 91 years of age. The provider discounts the amount of cash as compensation for the fact that they may have to wait many years before receiving their money back on your (or in the case of joint applications, the last persons) death or need to move into care. When the house is eventually sold, the lender receives his percentage of the sale price, not just the market price at the time the arrangement was agreed.

For example, let's say your house is currently worth £260,000. If you agreed to sell 50% (equivalent to £130,000 based on current value) and because of your age you receive a rate of 40 per cent, you will only receive £52,000. If the house is then sold after 15 years, and is then worth £400,000. The lender collects 50 per cent of this amount, which is £200,000.

The percentage you receive depends upon your age and sex - the older you are the more you will receive. Whilst under these schemes you sell the ownership, you are still responsible for the property and bills relating to it.

If you have retained a percentage of ownership when you (or in the case of joint applicants, the last survivor) die or need to move into care you or your estate receives the full value of the share retained.

Advantages of Reversion Schemes

• The cost of the loan is known at the outset (the percentage sold) compared to lifetime mortgage type schemes where it depends on how long you live.
• You know in advance how much of the home you will leave to your family.
• Larger sums can be released than under a lifetime mortgage – important if you still have a large mortgage which you want to pay off.
• As the percentage sold is set at outset, you are less affected by falling house prices than under Lifetime Mortgages.
• Unless you sell all of the home, you continue to benefit from any growth in value of the share you retain.
• Unless the maximum is taken at the outset , you should still be able to sell further percentages whenever required. This means that you should be able to raise further funds later to either improve your finances further, pay for care or even mitigate Inheritance Tax. Such further releases are unlikely under Lifetime Mortgages unless your home increases in value by more than the loan increases with the compounding of interest.
• Relatively simple.
• You can still move (this is subject to the provider's approval and depends upon there being sufficient equity remaining to afford the new property).

Disadvantages of Reversion Schemes

• You receive only a percentage of the market value for the share sold. This is especially marked the younger you are, often making it uneconomical for low value properties. For example, let's say your house is currently worth £260,000. If you agreed to sell 50% (equivalent to £130,000 based on current value) and because of your age you receive a rate of 40 per cent, you will only receive £52,000. If the house is then sold after 15 years, and is then worth £400,000. The lender collects 50 per cent of this amount, which is £200,000.
• If you or the last person, dies relatively early, the cost of the scheme in terms of equity given up may prove more costly than under a lifetime mortgage.
• You lose ownership but are still responsible for the upkeep of the property.
• You loose the rights over the property and become in effect a tenant although no rent will be due.
• It is more difficult and may even be impossible to buy back any share sold or for your family to be able to buy it.

Reversion schemes are available from several different providers but details and terms vary. Apart from the amounts each company deducts converting your share into benefit, some schemes allow you to benefit from increase in property values while others do not. Some schemes will allow you to sell 100% of your properties, while others limit it to only 90%.
Reversion schemes involve selling all or part of your home, and may work out more expensive in the long term than downsizing to a smaller property, and may affect your entitlement to State benefits and grants.