With a home reversion scheme, you sell all or part of your home in return for a cash lump sum, a regular income, or both. Your home, or the part of it you sell, now belongs to someone else. However, you’re allowed to carry on living in it until you die or move out, paying no rent. Depending on your age and medical conditions, you might be able to access more funds.
What’s in this guide
How does it work?
Home reversion involves a company buying your home or a part of it.
In return you get a cash lump sum or an income.
You’ll usually get between 20% and 60% of the market value of your home depending on the circumstances, because the buyer:
- allows you to carry on living there, either rent free, for a fixed rent or a rent that will increase by a specified annual percentage
- cannot sell it until you die, move into care, or is permanently vacated.
The older you are when you start a home reversion scheme, the higher the percentage you’ll get of your home’s market value.
You get the right to carry on living in the home under a lifetime lease. Some plans might require a monthly rental payment to allow a larger amount to be released so you should make sure you can afford this.
The terms of the lease will vary depending on which reversion you choose.
Is it right for you?
Home reversion plans are higher risk than standard mortgages.
They could have major implications for tax, benefits, inheritance and your long-term financial planning.
You should always get financial advice before taking out a home reversion plan or any other kind of equity-release scheme.
This will help you find out whether it's suitable for you.
They can be a useful way of releasing equity from your home but make sure that you’re aware of the risks before you sign up.
If you want a lump sum or income now, and want to stay in your home, and you don’t need anyone else (such as children or other family members) to benefit from the full value of your home, a home reversion might be worth considering.
But you will no longer own your home (or only own part of it).
You’ll still have to maintain the home while you live in it, so you might need to set aside money to do this.
You’ll also have to follow the terms of the lease and you could still be liable for other costs such as ground rent (or chief rent) no matter how much of your home has been sold.
This is an annual sum payable on some freehold properties.
If this could be a problem, then a home reversion might not be suitable for you.
It’s essential you get your own solicitor to check the lease and give you advice.
Home reversions are normally best suited to older people.
What does it cost?
You might have to pay:
- to maintain the property
- a monthly rental payment if applicable under the terms of the agreement
- an arrangement fee to the provider for the product
- a fee to the adviser for their advice and help setting up the scheme
- valuation fees – the valuation will determine how much you sell your home for, so make sure you pay for an independent valuation and never accept a valuation suggested by the reversion company
- legal fees – make sure you pay for independent advice; the terms of the lease must be checked by a solicitor appointed by you, and not by the reversion provider.
Questions to ask your adviser
Always ask questions if anything is not clear.
Here are some important questions:
- Can you transfer the home reversion scheme if you want to move?
- How will taking out a home reversion affect your Income Tax position and your eligibility for benefits?
- What conditions does the home reversion impose on you for continuing to live in your home?
- If you want a regular income how will you achieve it? Will the income be guaranteed? Will it be fixed or variable? How often and for how long will it be paid?
