Home-Reversion

Home-Reversion

Home-reversion is one of two schemes that equity release has to offer. The arrangement works by enabling the borrower to seek a lump sum of money or capital, alongside the promise that they are guaranteed lifetime occupancy in their current home, on the condition that the home-reversion provider is entitled to part or even full shares in the property. If the arrangement agreed is to be a full home-reversion, then the borrower sacrifices ownership, allowing the provider to gain full ownership of the property. Part home-reversions see the borrower to maintain a share in the home, allowing the inheritors to benefit from the future sale of the house. The contract is terminated at one of the following terminating events; the death of the borrower, or the indefinite relocation of the borrower to a care institution. The contract may be terminated if the agreement states the expiry of the contract at the end of a period of a minimum of 20 years after the agreement was finalised.

Home-reversions are useful as they allow the borrower to use the cash as they intend, without paying monthly instalments of interest. They also clarify the certainty of the borrower’s future, guaranteeing them lifetime occupancy and making them aware that the house would be sold on the market after the termination of the contract. If a part home-reversion was put into place, some equity in the property will be retained through the sale of the house, benefiting the borrower if they still exist, or their beneficiaries. Older borrowers are entitled to a higher percentage of shares in their home when arranging a home-reversion. The minimum age for the home-reversion scheme is usually higher than the minimum age for other equity release products.  

There are also drawbacks associated with home-reversion products. The money received from the home-reversion contract by the borrower will not be reflective of the true property value.  Furthermore, if the borrower was to die shortly after the agreement was made, the whole home-reversion procedure would be costly. The borrower also gives up the right to put together any future plans for the property and home-reversion based on income may limit the borrower’s ability to apply for state benefits.

Another limitation of arranging a home-reversion is the difficulty in moving house after the arrangement has been made. However, the plan holder would be eligible to move property if an agreement is made between the provider and the borrower. This only applies for part home-reversions. In this instance, the borrower would be able to use their share in the house to purchase a new house.

The borrower can benefit from further assistance when arranging a home-reversion scheme, in forms such as grants.  If the borrower has a disability he or she may be entitled to substantial grant, which is supplied by the local authorities. Social services departments also assist with further grants for those with disabilities.

Home reversion plans may not be suitable for individuals. By arranging a home-reversion plan, the homeowner is effectively agreeing to exchange the ownership of their property with the home-reversion provider. This prevents the borrower from building their estate up for their inheritance; however their beneficiaries may receive some equity from the estate if a part home-reversion is devised.

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This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE.