What is a home reversion plan?
Also known as a ‘reverse mortgage’, a home reversion plan involves selling your home to a private company in return for a lump sum or a regular income.
Key takeaways
Allows you to sell a chunk of your home to cover living costs while still remaining in the property rent-free
The home reversion offer is based on your age and health. You receive a tax-free lump sum or regular payments, and a lifetime lease
Home reversion plans are usually for those aged 70 or older and may affect benefits and taxes, reducing inheritance for beneficiaries
Home reversion plans are one form of equity release, but there are other options such as Lifetime Mortgages and Retirement Interest-Only Mortgages
Costs include arrangement fees, valuation fees, legal fees, and maintenance costs
What is a home reversion plan?
Home reversion is a form of equity release that allows you to access part or all of the value that has built up in your property.
The money you receive from the plan provider is tax free, and can be accessed as a lump sum or paid in regular instalments.
How do home reversion plans work?
After an independent valuation, the home reversion plan provider makes you an offer on a portion of your house.
As well as the percentage of your property you want to release for cash, they will also take into account factors like your health and age.
In return, you get a tax-free lump sum or regular payments and a lifetime lease.
Under the terms of a home reversion plan, you will be allowed to remain at your property for as long as you live, or until you move out. This could be, for example, if you have to go into long-term care.
How much money will I be offered from a home reversion plan?
It depends on your age, health, and how much of your home you’re selling, but it’s usually well below the full market value.
This is because the provider won’t get their share of the property back until you pass away or move into long-term care, and because you’ll stay in your home rent-free, they’ll offer you a discounted lump sum.
The older you are (or the shorter your expected tenancy), the higher the percentage you’re likely to be offered. For example, someone aged 70 might be offered 20% to 60% of the value of the share they’re selling. This varies between providers.
It might sound like a big cut, but it’s the trade-off for staying in your home for life without paying rent.
Advantages and disadvantages of a home reversion plan
As with any financial move, a home reversion plan comes with benefits and drawbacks:
Advantages of a home reversion plan
It provides a lump sum or regular income to cover living costs
The money you receive from releasing equity is tax-free
You can sell part – or all – of your house and continue living in it
Disadvantages of a home reversion plan
The income could affect any benefits you receive and how much tax you pay
You won’t receive the house’s true market value because you’re choosing to remain at the property
It can be expensive if you want to buy back the part of the property
Is a home reversion plan right for me?
Due to how they work, people don’t usually take out a home reversion plan until they’re aged 70 years or older. If you decide to take out a home reversion plan, you could find that your ability to claim means-tested benefits is affected.
It also means that you may pay more taxes. Crucially, you will also leave less behind for the future beneficiaries of your estate. This is because you’ll already have accessed some or all of the equity in your home.
Another option is to take out a lifetime mortgage, or Retirement Interest Only Mortgage (RIO) which allows you to borrow against the value of your house while retaining full ownership.
Using Equity Release Supermarket's smartER™ tool allows you to compare options.
What is the difference between a home reversion plan and a lifetime mortgage?
While home reversion plans and lifetime have some similarities, they also have key differences, including:
| Home reversion plan | Lifetime mortgage |
|---|---|---|
Who is it for? | Homeowners aged 70+ | Homeowners aged 50+ |
Do you retain ownership? | Part of the property is sold to the provider | Yes |
How will you receive your money? | Lump sum or regular payments | Lump sum, drawdown or income payments |
How is sale/price loan amount calculated? | Based on age, health and percentage of property sold | Based on age and property value |
Do you make payments to the provider? | No | Optional, and can reduce the amount you owe |
When is the loan repaid? | When you die or leave the property ie. move into long term care | When you die or leave the property ie. move into long term care |
Regulated by the Financial Conduct Authority | Yes | Yes |
What is the cost of setting up a home reversion plan?
Depending on your home reversion plan provider, you may face set-up expenses. These can include:
Arrangement fees
These are admin charges the provider might apply for setting up the home reversion plan, covering processing and paperwork.
Valuation fees
You’ll usually need to pay for an independent valuation to determine how much your property’s worth before the plan is agreed.
Legal fees for a solicitor acting in your interests
You'll need a solicitor to make sure the legal side is watertight and that you understand the agreement. These fees cover their time and expertise.
Maintenance costs
Even though you’ve sold a share (or all) of your home, you’ll still be responsible for keeping it in good condition, which can include repairs and general upkeep.
How to apply for a home reversion plan
You can speak to one of Equity Release Supermarket's expert advisers on 0800 088 5954, or by using the equity release comparison tool - smartER. Once you are ready, you can discuss the results in an initial no-obligation consultation.
Home reversion plans allow you to sell part or all of your property in exchange for cash and a long term lease. They are complex financial products and it’s important to seek specialist independent advice before entering into this type of arrangement or any other form of equity release.
Personal Finance Expert
Our expert says
As a way to extract value from your property as you move into retirement, a home reversion plan might seem like a good option – freeing up cash, without having the hassle of moving out. But equity release comes at a cost and there are a number of considerations to make sure the deal is right for you. This is why seeking independent advice before you make a final decision is essential.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Frequently asked questions
Do I still own my home with a home reversion plan?
Not fully. You either sell part or all of your home to the provider – so technically, you’re no longer the full owner. But you can stay living there for life, usually without paying rent.
Do I have to take out advice before entering into a home reversion plan?
Home reversion plans are regulated by the Financial Conduct Authority (FCA), and taking professional financial advice is required before you can go ahead. It helps make sure the plan is right for your circumstances.
Can I make changes to the property after I’ve taken out a home reversion plan?
You’ll need the provider’s permission first. Since they now own a share (or all) of the property, they’ll want to approve any major alterations. Small cosmetic changes are usually fine, but always best to check.
What happens when I pass away or move into long-term care?
When you pass away or move permanently into care, the property is sold. The provider takes their agreed share from the sale proceeds, and the rest goes to your estate.
Will a home reversion plan affect my benefits?
It might. The money you get from the plan could impact means-tested benefits, so it’s important to speak with an adviser to understand what this means for you.
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Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
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