If you’re a property owner in later life, you’ve probably seen the value of your home go up.

You might want to boost your retirement income by releasing some of that equity without moving house. Home reversion schemes and lifetime mortgages are two ways you can do that.

What is a home reversion plan?

Home reversion plans let people sell between 25% and 100% of their home in return for a cash lump sum, a regular income or both, while still living in it. They’re usually available once you’re aged 65 or older.

In practical terms, it’s like becoming a tenant in a home you used to own. You might even have to pay rent to your provider. It can also affect your entitlement to any means-tested benefits.

And you’ll have sold some or all of your home at less than its market value. That stops you from benefiting from future price rises, and cuts down the inheritance you can leave for your loved ones. In most cases, home reversion schemes aren’t the best choice. They’re based on between 20% and 60% of your property’s market price, usually giving you less value than you’d get from a lifetime mortgage.

How do home reversion schemes work?

When you take out a home reversion scheme, your provider will take ownership of their share and pay you however you’ve agreed. Some reversion plans are portable, so you can still move house if you want to.

Your provider won’t take any money out of your home until the whole property goes on the market and sells. That usually happens when you die, or move into long-term care. You’ll never have to pay back more than the value of your home.

If you’re older or in poor health when you take out a home reversion scheme, you might get a better deal. That’s because you’ll probably stay in your home for a shorter time, so your provider is taking less of a gamble on how house prices might change.

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Home reversion schemes vs lifetime mortgages

Lifetime mortgages are much more popular than home reversion plans, making up 99% of the equity release market. But a home reversion scheme might still be a better choice for you, particularly if you’re older or in poor health.

Your financial adviser can talk you through both options and help you make the right decision for you. This chart explains the basic differences and similarities between the two types of scheme:

table
With home reversion schemes: With lifetime mortgages:
  • You sell 25% to 100% of your home
  • Your lender pays less than the market value
  • You can usually get them when you’re 65 plus
  • Your lender doesn’t charge any interest
  • If you’re older or in poor health, you might get a better deal
  • We don’t offer them
  • You borrow against 20% to 60% of your home
  • It's a loan secured against your home
  • You can get them when you’re 55 plus
  • Your lender will charge interest on your loan
  • Your age or state of health make no difference to your deal
  • We do offer them
table
With both home reversion schemes and lifetime mortgages:
  • Any cash you get will be tax free
  • You can take your money as a lump sum, regular payments or both
  • You won’t end up in negative equity
  • If you choose a portable plan, you can still move house
  • Depending on the product you choose, you might have to make payments to your lender
  • You can choose to pay back your loan or buy back your home, but this can be costly
  • There might be an impact on any means tested state benefits you’re getting
  • You’ll have less to leave as an inheritance for your loved ones
  • You have to take them out through a financial adviser

How much could you release?

Interested in equity release? Find out how much you could release with our quick and easy to use equity release calculator.

What’s next?

We hope that’s helped you understand how home reversion works, and why lifetime mortgages are usually a better choice. If you want to find out more, we recommend a chat with your financial adviser (if you don’t have one, you can find one at Unbiased) or our own advice service.

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