Home reversion is a form of equity release that allows you to access some of the value that has built up in your property.
Effectively you sell part or all of your home to a lender, who guarantees that you can continue to live there rent-free for the rest of your life.
How do home reversion plans work?
The provider makes you an offer on a portion of your house, taking 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, for example to go into long-term care.
Because you will retain use of your home, your home reversion plan provider will usually pay you only 30% - 60% of the full market value of your home.
How much you get will depend on how old you are, and how long your home reversion plan provider expects you to live or remain at the property.
You’ll then need to sign a tenancy agreement, and some lenders will ask you to pay nominal rent to your new landlord (for instance, £1 or £2 a month).
Is a home reversion plan right for me?
Due to how they work, people only usually take out home reversion plans once they’re aged 70 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, and that you have to pay more tax. Crucially, you will also leave less behind for the future beneficiaries of your estate – because you’ll already have activated some or all of the value of your hope.
Another option is to take out a lifetime mortgage, which lets you borrow against the value of your house but retain a level of ownership.
What are the costs of setting up a reverse mortgage?
First of all, when you take out a home reversion plan, make sure you have the terms of the lease thoroughly checked by your own solicitor. You need to ensure that you understand and are happy with the details set out in the agreement before you sign on the dotted line.
You’ll then have to make sure you properly maintain your home – once you take a reverse mortgage, you’re technically a renter and not an owner any more. You won’t be able to make major changes for the same reasons.
Depending on your home reversion plan provider, you may face set-up expenses including:
- Arrangement fees
- Valuation fees
- Legal fees for a solicitor acting in your interests
- Maintenance costs
How to apply for a home reversion plan
One good way of finding a home reversion plan is to approach MoneySuperMarket’s chosen partner for reversion mortgages, Fluent Lifetime.
It works like this: you fill in a form explaining your circumstances, and Fluent will give you a call. You can also contact them directly on 01204 899581.
Reverse mortgages are complicated financial products. It’s important to seek specialist advice before entering into a home reversion plan, or any other form of equity release.