It’s a form of equity release that allows you to ‘take out’ some of the wealth that has built up in your property so that you can use it now.
How do home reversion plans work?
Under the terms of a home reversion plan, you should 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 even after you’ve sold it, 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.
In order that you can remain in your home after it is sold to a home reversion plan provider, you’ll need to sign a lease or tenancy agreement and may also have to pay nominal rent to your new landlord (for instance, £1 or £2 a month).
Is a home reversion plan right for me?
Home reversion plans are complicated and risky financial products. It’s important to seek specialist advice before entering into a home reversion plan, or any other form of equity release.
Ordinarily, people who take out home reversion plans are 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.
A home reversion plan may work well for you despite these considerations, but bear in mind that if you opt for one you’ll also have to commit to properly maintaining your property while you live there. This is because, technically, you will no longer own it but will be renting it from your buyer (the home reversion plan provider).
If you take out a home reversion plan, make sure you have the terms of any lease you’re expected to sign 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.
What costs are associated with setting up a home reversion plan?
Depending on your home reversion plan provider, you may face set-up expenses such as:
- Arrangement fees
- Valuation fees
- Legal fees (for a solicitor acting in your interests)
- Maintenance costs
- Fees for an advisor to help you with making the right decision, and help set up your home reversion plan.