Home reversion is a variation of the old conventional equity release schemes which originated back to the older days and the origins equity release schemes. The first home reversion scheme was developed by Hodge Lifetime who are still funded by Julian Hodge Bank. Whilst further development in equity release schemes have come & gone, home reversion has stood the test of time.
Longevity, however isn’t always the barometer of success. With most financial products they can be the victim of their own success as competitors will always try to usurp & develop newer more flexible plans. This is currently the exact same position that the home reversion plan marketplace is finding itself in. Increased competition has come in the form of the lifetime mortgage scheme, which can itself be segmented into different types of lifetime mortgages.
History has shown that home reversion plans have stagnated in design, function & flexibility which in todays more financially astute general public is doomed to failure. Home reversion plans have not been developed to cater for the changing needs of the equity release UK over 55 age group.
Generationally, attitudes have changed. We currently seem to live a more ‘disposable lifestyle where people have a more ‘take it, or leave it’ sense of living. Couple that with the fact that people are more proactive & younger in their ways during retirement. They need financial products that can adapt to their retirement lifestyles. You can see that lifetime mortgages offer the chance to readily moving house, enable partial repayment of the interest or even capital borrowed and now come with the option of impairment, thus using health as a means to calculate maximum equity release cash amounts. Home reversion plans offer none of these features currently.
Alas, home reversions certainly take ownership of one’s home, however they haven’t taken ownership in there reasons for their decline in numbers. This needs to be addressed before the end of these plans is nigh.
The principles behind home reversion plans
After a regulation property survey conducted by an independent surveyor, home reversions allow you either to sell all of your property outright, or partial sale of your home to the reversion provider. The portion you sell will be determined by the amount of equity needed to be released, or alternatively it can be calculated on the percentage of the property you wish to leave the beneficiaries, which itself will calculate a cash lump sum in its own right.
There are some security features that come in-built with home reversion schemes which include the right to permanent residency and occupancy of your home. Therefore security of tenure is guaranteed by the home reversion provider which provides much peace of mind following the recent adverse press articles surrounding the ‘sell & rent back’ schemes.
Home reversion calculations
While some methods of releasing equity from your home might potentially expire all the equity within your property during your lifetime, home reversion schemes ordinarily prevent the equity release company from selling your property and reclaiming any accumulated debt while you and your spouse are alive and living in the home. This is due to the fact that with home reversion plans, no interest is involved, thus the homeowner does know exactly where they stand with regards to passing on their inheritance.
In this sense, the home reversion policy has some advantage over its competitors. Unlike some schemes, it cannot saddle you with an un-payable debt or expose you to the risk of losing all the equity within your home.
However, you will have to consider the fact that home reversion policies still significantly reduce the amount of property that you can leave in your estate & ultimately pass onto your family.
However, there are still advantages and disadvantages to these home reversion policies and you would be well-advised to think carefully before signing up. Please read the following list illustrating the pros and cons of home reversion schemes: –
Advantages of home reversion plans
• Plans commence at age 65, which means better terms than starting at 55
• The facility to guarantee a fixed percentage of the property will pass into your estate
• Any escalation in house price will be reflected in the remaining share you own in the property
• If house prices rise, you still benefit from any increase in value on your share of the property
• A there is no compounding of interest, there is no inconvenient repayment of growing debt
• The older you are, the greater the maximum lump sum will become, as life expectancy becomes shorter.
• On certain occasions more funds can be released on home reversion than could be raised on a lifetime mortgage. This however wouldn’t be the case for enhanced lifetime mortgages.
Disadvantages of home reversion plans
• Due to selling part, or all of your property to the lender who will no longer completely own your own home If you sell all your property, your estate will not receive any inheritance
• You will not retain any property price escalation on the proportion of the property sold
• Reversion companies are more selective about the properties they release onIf you die shortly after taking out the plan, there could be a disproportionately high loss to your estate
• Therefore, due to the complexity of the options available, ensure you obtain the services of a qualified UK equity release professional who can help & guide you to making the correct decision for not only now, but also your future situation.