When researching whether equity release is a suitable option, you may be finding most of the information available in the press or on the internet focuses on the main types of plan available - which are Lifetime Mortgages.
However, there is in fact another type of plan which is less commonly understood and these are called Home Reversion plans.
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I think it's important to consider these plans in more depth. Increasingly home reversions are become more appropriate for those considering taking an equity release plan, particularly if those looking for a simple plan giving a high degree of certainty.
Home reversion plans involve transferring ownership of all or part of your property to the provider in exchange for a tax free cash lump sum (or you can choose regular payments). Your property is independently valued and from this the provider will work out how much they will pay you for the percentage of the property being sold. The amount you're paid won't be as much as the market value of the property. This is simply because you will be living there rent free for the rest of your life (or until moving out permanently into long term care).
As a "rule of thumb" the older you are the more the provider will pay you for the share sold, that's because your life expectancy is less. You are still responsible for paying all your bills, insurance and maintaining the property. At the end of the plan the property is sold and if you've retained part of it, your share of the proceeds will be paid to your estate.
When considering a home reversion provider it's important to choose a company who is a member of the trade body Safe Home Income Plans (SHIP). SHIP members offer a guarantee to their customers, the main benefits of this are that you are allowed to remain in your property for life (provided the property remains your main residence) and you have the right to move plan to another suitable property without any financial penalty. Plus of course you have the safeguard of independent legal advice. The current providers of home reversion schemes include Bridgewater, Hodge Lifetime, Aviva & Crown equity release.
Home reversions are also regulated by the Financial Services Authority which oversees how providers and advisers must deal with you. And finally, because reversions involve the sale of property a third level of extra consumer protection is given by UK property law, which governs the relationship with the provider and their obligations towards you.
So what type of people are home reversions most suitable for?
Well it really boils down to your thoughts and concerns. As a guide, a reversion might be more appropriate for someone who falls into some or all of the following categories:
· Customers who want to specifically avoid debt - a home reversion plan is not a mortgage & therefore cannot be repossessed
· Those concerned house prices won't keep going up - the risk of falling house prices is passed to the provider
· People in good health and confident that they may live for many more years to come (for example there may be a history of longevity in the family) - generally the longer you live the better value a reversion becomes
· Anyone wanting to the peace of mind of knowing that if they need to in the future, they can access the maximum cash from their remaining equity - some providers will guarantee to always release further funds until 100% of the property is sold
· Clients wanting to guarantee an inheritance for their estate - for example if only 25% of the property is sold, the estate will inherit 75% of its value after costs
· Those wanting to release more cash from their property than they can by using a lifetime mortgage
Naturally home reversion plans are not for everyone. Generally you will only be eligible to take a reversion plan if you are 65 or older.
As reversions are a long term commitment they should not be considered if you intend to repay the money released at some stage in the future (for example if you're expecting an inheritance).
If you are in poor health or expect to have below average life expectancy then you may not get full value from a reversion either. Nevertheless, there are relevant equity release schemes that take poor health into account & can thereby provide a greater lump sum.
For those unfamiliar with how a reversion works there is understandably a little concern about giving up all or part ownership of your property.
The reality is that the terms and conditions of a reversion (ie the "small print") are similar to that of a lifetime mortgage and your right to privacy and freedom to live in your own home are not affected.
Usually with a home reversion you are granted a lease for life to live in the property for as long as you wish to. And this important legal arrangement is recorded by HM Land Registry much the same as a leasehold flat or house is. So although you may have sold all or part of the property to the provider it still very much remains your home.
The decision to release equity from your home using a home reversion plan or a lifetime mortgage is an important one and you will need specialist advice from an Independent Financial Adviser in order to do so. They can talk to you about whether equity release is right for you and if it is what sort of product best suits your particular needs.
Home Reversion Schemes Offer Certainty for Beneficiaries CARE IMPROVEMENT PLUS PROVIDER
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