A home reversion plan has reduced in popularity over the years & is not as common as the lifetime equity release plan. The home reversion scheme allows a release of equity by the homeowner selling a portion of or an entire property in exchange for money.
This money is normally paid by an equity provider as one large amount or it is paid in monthly instalments. Some providers allow you to collect a large amount in advance as well as small monthly installments. Home reversion schemes do have their advantages.
The price that the equity release provider will pay for the property will normally be significantly less than the market value of the property. This might sound discouraging but there is a reason for it. The equity release provider need to do this because the property owner will be allowed to stay in his or her property until he dies or decides to move into long term care. Only then will the equity release provider be able to sell the property. Additionally, they will live in a portion of their property that they no longer own – rent free.
The amount that the property owner receives is dependant on the value of the property and the percentage that the home owner is willing to sell. If the property owner does not decide to sell all of the property immediately, he or she retain the freedom to sell another portion of the property in the future, if there is a need to do so.
The advantages of home reversion plans are as follows. The payment that the property owner receives is tax free. The property owner is allowed to remain in his or her property although he or she has sold it or a portion of it. There is a guaranteed inheritance to pass to ones heirs if less than 100% of the property is sold.
The disadvantages are as follows. The property owner will be selling his property for less than the market value. If for any reason, the property wants to buy back the portions of his or her property that were sold, he or she needs to buy it back at the current market value. This is a clear loss. If you need money for short term purposes and uses, you should not consider a home reversion plan. There are other forms of equity release schemes that can provide you with the money that you need for short term use without requiring you to sell your house.
Home reversion schemes are not to be confused with sell & rent back schemes, as home reversion plans are fully regulated by the FSA (Financial Services Authority) & the providers will also be members of SHIP (Safe Home Income Plans).