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Home Reversion in Equity Release Financing
Home reversion plans were among the first financing products to offer equity release, although they are much less common now.
Lifetime mortgages are more flexible and have taken over much of the home reversion market, although there may be scenarios where the latter is the best route.
If you are interested in home reversion or want to compare different equity release products, it is important to understand the terms of the agreement.
Although home reversion isn't widely available, a few providers may consider applicants in a wide range of circumstances, including those who may not be eligible for another equity release solution.
How is a Home Reversion Plan Different From a Lifetime Mortgage Equity Release?
Home reversion schemes mean selling some or all of your equity to a lender at a price beneath market value.
You are paid a lump sum, tax-free, or you can choose a regular payment value or a mixture of both options.
You remain in your home as a tenant since the lender owns a proportion of the residence (or all of it in some cases).
The difference from other equity release products is that you sell the ownership rights up-front. Although you have the right to live in your property, you are now a tenant.
Home reversion lenders provide security of tenure, which means that you can live in your property until you pass away or go into long-term care.
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Is a Home Reversion Plan the Best Equity Release Product?
Most homeowners will opt for a lifetime mortgage because they don't sacrifice their homeownership.
However, some may choose home reversion because:
- They can live in the home for life, rent-free.
- Partial reversions can mean retaining ring-fenced percentage ownership to leave to a beneficiary in their will.
- There is the option to secure a large, lump-sum payment where other equity release products may not be suitable.
- The applicant does not pay any interest because they haven't taken on debt but have sold the equity.
What Are the Downsides to Home Reversion Equity Release: How Does it Work?
The pitfall is that if you sell your home through a home reversion scheme, you don't own it any longer or have to sell a proportion.
You still give up a considerable amount of your equity in the latter.
Although you have the freedom to live in the property, you have given up all legal ownership rights but still, need to cover upkeep and maintenance costs.
The lump-sum payment may mean you lose access to some benefit income where it is paid on a means-tested basis.
How Much Could I Borrow Through a Home Reversion Plan?
The amount available depends primarily on the value of your property but also your health and age.
Generally, the lender will pay closer to market value if you are older or in ill health.
However, you cannot sell a property through home reversion for market value - the provider will always require a discount.
Most home reversion schemes pay around 25% to 50% of the property value, often a deciding factor in choosing an alternative equity release product.
What Are the Eligibility Criteria for the Best Equity Release Home Reversion Schemes?
Most home reversion providers will consider applicants who are 65 years old or above and own a property worth £80,000 or more.
If you apply as a joint owner with a partner, the provider will consider the younger applicant's age. If they do not meet the age requirements, an alternative solution is advisable.
Because there are so few lenders, you may find that you cannot apply for home reversion in your area.
Of the two main providers, one focuses on the south and east of Bristol and areas around Birmingham. The other concentrates only on England and cannot buy a property in the Channel Islands or the Isle of Man.
Can I Get a Lifetime Mortgage Equity Release if I am Not Eligible for Home Reversion?
A lifetime mortgage works differently because you borrow a loan secured by your equity rather than selling ownership.
You can apply for a lifetime mortgage from 55, whereas most home reversion plans only cater to applicants of 65 or above.
Another option could be remortgaging or applying for a second charge mortgage if you have plenty of equity in your property, are too young for this type of equity release product, and need to raise capital.
How Does My Age Impact My Eligibility for the Best Equity Release Products?
Lenders will always need to ask questions about your health and age because those metrics impact their calculations, determining:
- How long statistically you are likely to live.
- How likely it is that you will enter long-term care.
- How long they will need to wait before recouping the debt or selling the property.
Generally, if you have a health condition and want to release equity to finance care or help cover medical support costs, a lender will be able to offer a higher value.
Can I Use a Home Reversion Plan on a Non-Standard Property?
Homes built from non-standard materials are more difficult to finance or use for home reversion because it might be harder for a provider to value the property or sell it when the time comes.
The rules about 'standard' homes vary between lenders, and one might consider ex-local authority properties a standard construction, whereas another might not.
If you would like to release equity from a non-standard home, such as a timber-framed house or a thatched cottage, we'd recommend you contact a broker before making any decisions.
Are Home Reversion Providers and Lifetime Mortgage Equity Release Lenders the Same?
No, home reversion is a fraction of the equity release market, around 1% of the sector, so there are very few providers, and lifetime mortgage lenders will not offer home reversion.
In the past, you could apply for home reversion through several mainstream providers such as Aviva and Legal & General.
Still, lifetime mortgages are a more favourable product, particularly due to regulations introduced around equity release.
Is Equity Release Safe Through Home Reversion?
There are several pitfalls to home reversion, not least leasing some or all of your home for less than market value.
Home reversion is rarely the best solution, but some homeowners may prefer this route due to their circumstances or prefer home reversion if they do not wish to leave property to any heirs in their will.
What Are the Alternatives to a Home Reversion Scheme?
There are lots of possible alternatives, such as:
- Downsizing - selling your home for market value and buying somewhere smaller or less expensive.
- Lifetime equity release mortgages or retirement interest-only mortgages.
- Refinancing another property on an interest-only basis.
- Taking out a standard mortgage with a lender who offers flexibility around age limits.
- Using a secured loan, grant funding or a subsidised loan if you need the capital to finance home improvements or adjustments to cater to changing access or mobility needs.
- Applying for a drawdown from a pension scheme.
We strongly advise you to seek independent advice before applying for home reversion, as it is often seen as a last resort and the least attractive way to release equity.
How are Equity Release Safe and Regulated With Home Reversion Schemes?
Home reversion may not be right for everyone, but it is regulated with consumer protections.
Homeowners have entitlements and assurances, such as the guarantee that they cannot end up in a negative equity situation, where the lump sum paid is worth more than the property is now worth.
Find Out More About Equity Release: How Does it Work and Which Product is Best for You?
Please contact our Mortgage Brokers at your convenience if you would like any further information about home reversion schemes, lifetime mortgages, or any other potential equity release solution we have discussed here.
The Mortgages and Home Finance: Conduct of Business Rules (MCOB) govern the sale and management of home reversion schemes.
Mortgage lenders also need to abide by official rules about interacting with applicants, overseen by the Financial Conduct Authority (FCA).
As we have discovered, only a very small number of home reversion providers remain in the UK.
Many previous lenders now only provide top-up financing for existing clients and will not accept new applicants.
Please call us if you would like to verify whether there is a home reversion lender available in your local area.
No, home reversion plans are not available everywhere, and in Scotland, the system works differently because of the legality of equity release products.
Scottish home reversion does not have a lease agreement but a co-ownership basis where the homeowner enters into a contract with the provider.
Although there are postcode restrictions, there may be home reversion plans suited to Irish properties.
It can be tricky to compare home reversion plans - partly because you may only have one lender to select from and because the amount offered will only become clear after you make an application.
Online rates tables and home reversion calculators are unreliable because they generally show sponsored products and cannot cater to your specific circumstances.
If you would like independent support evaluating two home reversion plans or establishing whether a scheme you are interested in is right for you, please get in touch.
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.
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