Home Reversion Plans explained and help available

Here we take a detailed look at Home Reversion Plans and how they work together with their possible advantages and disadvantages over other types of Equity Release products and provide details with how we can help with a Home Reversion Plan or other Equity Release Scheme.

Table of Contents:

What is a Home Reversion Plan? The Reversionary Home Income Plan explained!

'So, what is a Home Reversion Plan?' you may be asking. Home Reversion Plans, are one of the two main Equity Release schemes that are available in today's marketplace. Home Reversion Plans allow homeowners, who usually have to be a minimum age of 65, to sell all part of their property in exchange for a tax-free lump sum, or a regular monthly income. On the arrangement of the transaction, they will also receive a guaranteed lifetime tenancy.

The other main method of equity release is the Lifetime Mortgage plan. Details of these schemes can be found in our glossary articles for Lifetime Mortgages and Equity Release.

How does the Home Reversion Scheme work?

The Home Reversion Scheme allows the property owner to release part or all of the value of their home. For example, if a couple of senior citizens need to raise cash, or supplement their pension income, and decide to enter into a home reversion plan, and have chosen to release 50% of their equity.

Let's assume the value of their property is £200,000. At 50% the couple will retain a 50% interest in the property, and receive a lump sum payment in respect of the 50% they are releasing. However, they will not receive 50% of the market price. Instead, depending on their ages, they will receive probably less than half of the market value, probably between £40,000 and £50,000 - the older their ages, the more they will receive.

So in return for releasing 50% of their property, the couple will be able to live rent free until the earlier of the second partner's death, or when the property is sold if earlier. When the property is eventually sold, their Estate will receive their remaining 50% share of the proceeds of the sale. So, if the property has risen in value since the couple entered into the Home Reversion Plan, and is now worth £340,000, then the couple's beneficiaries will receive 50% of the increased price, that is 50% of £340,000, which is £170,000.

What are the advantages of the Home Reversion Plan over other types of Equity Release product?

The main advantages of the Home Reversion Plan over the other Equity Release products are:

Home Reversion Plans can be particularly useful where the homeowners do not have any close relatives to whom they could leave their property, and so the homeowners could, if they wished, release the entire 100% value of their property.
Similarly, if the customers wish to leave a particular inheritance, they can release as little as 15-20% of their property, right up to 100%. Whatever proportion is not released, will go to their Estate to be distributed to their beneficiaries in accordance with their wishes.
There are no interest payments that will roll-up against their share of the property.
Whatever share the homeowners retain, they are guaranteed to be able to live in the property rent-free, until the survivor of the partners eventually dies.
Most Home Reversion Plan providers are members of SHIP (Safe Home Income Plans) where certain guarantees form part of the scheme agreements. For your reference all the equity release products we arrange are backed by SHIP.
The Home Reversion Plans can be a useful vehicle for Inheritance Tax (IHT) planning and mitigation.

What about the downsides of the Home Reversion Plan?

The main disadvantages of this scheme include:

Regardless of the proportion released, on entering into the Home Reversion Plan, the participants relinquish their homeownership and effectively become lifetime tenants.
In the event of the plan holders dying early, the Home Reversion Plan could be very expensive, whereas by comparison, the Lifetime Home Equity Release Mortgage (HERM), would have incurred a substantially less amount of rolled-up interest charges.
Home Reversion Plans are not available as early to planholders who usually have to be aged between 65-70 as a minimum, whereas many HERM products are now available as early as 55.

What about choice when it comes to Equity Release?

The Equity Release marketplace has developed rapidly in the last few years, and products are continually evolving thereby providing a tremendous amount of choice. As we have already discussed the two main Equity Release products, that is the Home Reversion Plan and the Lifetime Home Equity Release Mortgage (HERM), both provide:

A lump sum, or
A regular income, or
A combination of both income and a lump sum.

In addition to the main two types of Equity Release scheme, where no monthly payments are required to be made by the planholder, there are two other types of product:

Equity Release Interest Only Mortgage: here the property owners release equity in their property by borrowing from a conventional lender on an interest only basis. The main features here are that the borrower retains ownership, and the mortgage balance does not increase because interest only payments are being made.
Home Income Plans: with this plan, again the property owner retains ownership of the property, and raises a sum of money with which he purchases an Annuity (a type of Pension), which is designed to repay the loan interest, and the remainder is geared to provide a supplementary monthly income.

Is 65 the new 50...?

As we all look forward to a longer lifespan, many pensioners refuse to grow old gracefully! It's a fact that older people these days are considerably more active than their forebears were, and demand interesting lifestyles!

So equity release can help to satisfy these demands, as well as assisting in some or more of the following uses:

Increasing income
Improving lifestyles, e.g. holidays, car, visiting relatives overseas
Inheritance Tax planning
Home Improvements
Property purchase (including holiday homes)
Lifetime gifts to family
Paying for care
School or University fees for grandchildren

Can Shire Direct help me with a Home Reversion plan or other equity release scheme?

So if you are considering Equity Release, and require further information, then please telephone us on 08000 282 281. The call is free and without obligation and our lines are open everyday, including the weekends from 8am until 10pm. Alternatively, you can also enquire online at any time. All the equity release products we arrange are backed by SHIP (Safe Home Income Plans), the equity release trading standards body.

Naturally, our aim is to provide all our customers with a first-class mortgage service. You'll find us to be friendly yet professional, and not in the slightest bit stuffy! Part of the process will entail in-depth discussions, where we will carefully assess your aspirations, needs and circumstances.

Qualified Equity Release advice!

It's probably important to note that the Financial Services Authority (FSA) regulations require advice in the provision of equity release products to be undertaken only by suitably qualified Advisors. We're delighted to let you know that Shire Direct has a specialist team of qualified Advisors in Equity Release products, who hold:

Certificate in Lifetime Mortgages (CeLTM)
Certificate in Regulated Equity Release (CeRER)
Certificate in Mortgage Advice and Practice (CeMAP)
Advanced Certificate in Mortgage Advice and Practice (Adv. CeMAP)

Well, we hope we've been able to provide you with some insight into home reversion plans and equity release. Don't forget we're only ever a free telephone call or couple of mouse clicks away and would be delighted to hear from you!

Enquire Online now, or call us today 08000 282 281 - our freephone lines are open 8am-10pm everyday! We'd love to hear from you!

This is a Home Reversion Plan. To understand the features and risks, ask for a personalised illustration.

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Home Reversion Plans explanation

Home Reversion Plans explained and details of our available help!