Home Reversion Sschemes

Home Reversion Sschemes

Home reversion schemes are equity release products, which function by lending a borrower a non-repayable sum of cash along with guaranteed lifetime occupancy to their home, in exchange for part or full shares in the borrower’s property. Home reversion schemes contracts are terminated if the borrower dies or has to be admitted to a care home indefinitely, giving the provider the right to sell the property and keeping profit of the shares they own among the property. A part home reversion scheme entitles the inheritors to a percentage of the sale of the property, depending on how many shares the borrower still had in the property. Our aim is to enable clients to be aware of the different approaches towards home reversion schemes, including alternative options, or devising the most appropriate home reversion scheme tailored to the client’s desires.

There are a number of advantages a home reversion scheme has over a lifetime mortgage scheme. One advantage is that no instalments of mortgage interest have to be paid on a monthly basis, allowing the borrower to use the money to their intention. In addition, home reversion schemes allow the beneficiaries to make profit from the sale of the property after the borrower’s death. They will even benefit from a reduced inheritance tax due to a significant proportion of shares taken out of the estate by the provider.

However, many problems have to be taken into account when applying for a home reversion scheme. The untimely death of the borrower soon after the arrangement is made may result in a costly process for the inheritors. Furthermore, the cash received by the borrower will not reflect the real property value and moving house after the agreement has been made would prove to be difficult. The borrower also loses the right to arrange future plans for the property. Income based home reversion schemes may limit the borrowers choice of annuities and also increases in income may prevent the borrower to be eligible for state benefits. By contacting us, we are able to provide professional advice, highlighting the risks and the benefits of home reversion schemes. We also give our opinion on the most effective form of home reversion scheme for the individual.

Although very unlikely and in most cases unnecessary, the borrower may be able to move homes. An agreement has to be finalised with the provider to allow the borrower to switch the mortgage onto the new property. However, this would only be achievable if the arrangement was a part home reversion scheme, otherwise the owner would have full ownership of the property.  The individual would be able to use the share in the original house to purchase the new house.  As I mentioned, this option is usually only applied in extreme cases.

Before making an allowance for home reversion schemes, the individual must recognize the potential pitfalls that accompany the arrangement. The borrower must be aware that there will be no equity in the estate after death when arranging a full home reversion scheme and the property will instantly be put on the market for sale. Another solution instead of arranging a home reversion scheme would be a lifetime mortgage scheme, which allows the borrower to retain ownership of the property on the basis that the total mortgage, along with the interest, is paid at the end of the contract. By appreciating what the client hopes to achieve out of home reversion schemes, our advisers can set up a fitting home reversion plan tailored to the client’s aspirations.

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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.