The pros and cons of over 55 equity release through a home reversion plan
23 January 2019 • Equity release insights
Roll-up mortgages account for 99% of equity release schemes, but home reversion plans offer a different solution that sits better for some people.
What is a home reversion plan?
With a lifetime mortgage, you take out a loan against the value of your home. With a home reversion scheme, you sell part of your home.
Advantages of home reversion plans mortgages.
- You still own your own home – even if you take out a mortgage up to 99.9% of the value of your property, you are still the legal owner. This also means that you continue to benefit from any increase in the value of your property. If you take out a loan for 100% of the value of your property, if it’s provided by a lender who is a member of the Equity Release Council, you will not be thrown out of your home, as long as you abide by the terms of the agreement.
- You will not build up any debt.
- Clarity: You (and your heirs) know what proportion of your home is owned by you, and what proportion is owned by the home reversion company (although you won’t know the actual value, as this will depend on the housing market). You can also elect to protect a percentage of the eventual sale of the home, ensuring a guaranteed inheritance for your heirs.
- No monthly repayment
- 5 You can usually draw more through a home reversion plan than a lifetime mortgage – but you still have flexibility about how you receive the equity released:
a. A lump sum
b. Regular payments
c. A combination of lump sum and regular payments
- You may be able to take out additional loans in the future: This will depend upon the amount of your property you originally sold to the home reversion company.
Disadvantages of Home Reversion Plans.
- Reduced value of your estate: While your beneficiaries will know what proportion of your home you can leave to them, it will obviously be less than if you owned all of it.
- Better as a longer-term plan: If you die soon after starting the plan, you could have sold your home (or a proportion of it) cheaply. You will get less than the market value of your home from the home reversion company for the proportion they are buying; if you live for many years, this may be offset by increases in property prices, but if you die soon after, you will have accepted a below-market price for limited benefits.
- Slower to arrange: Some schemes can take a long time to arrange, and some companies are very selective about the properties on which they will offer a home reversion plan.
- Potential impact on means-tested benefits: Over 55 equity release through a home reversion plan may affect your eligibility for means-tested state benefits. Your 55+ Equity Release advisor will check this when considering their recommended solution for you.
- Only available for people over 65
- Your heirs cannot normally choose to keep your property after your death: While this is often possible with a lifetime mortgage, it is not normally an option with a home reversion scheme.
The two different types of over 55 equity release schemes both have advantages and drawbacks. It is important to understand these and weigh them up properly. It is also important to choose a trusted, qualified adviser who can help you consider the different options in the light of your personal circumstances to help you make the best decision for your individual needs.