With a home reversion, 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 may be able to access more funds.
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. If you get a cash lump sum you may decide to invest this yourself to provide an income.
You’ll usually get between 30% and 60% of the market value of your home depending on the circumstances, because the buyer:
- allows you to carry on living there rent free
- cannot sell it until you die or move into care
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. The terms of the lease will vary depending on which reversion you choose.
Is it right for you?
Home reversion plans are high-risk products. 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 is appropriate for your personal needs and circumstances.
They can be a useful way of releasing equity from your home but you must be sure it is right for you.
If you want a lump sum or income now, and want to stay in your home, and you do not need anyone else (eg children or other family members) to benefit from the full value of your home, a home reversion may be worth considering.
But you will no longer own your home (or only own part of it). However, you will still have to maintain the home while you live in it, so you may 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 what proportion 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 may not be suitable for you. It is essential that you appoint your own solicitor to check the lease and give you advice.
Home reversions are normally best suited to older people, perhaps over 70 or 75.
What does it cost?
You may have to pay:
- an arrangement fee to the provider for the product
- 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 scrutinised by a solicitor appointed by you, and not by the reversion provider
- to maintain the property
- a fee to the adviser for their advice and helping you set up the scheme
Questions to ask your adviser
Always ask questions if anything is not clear. Here are some important questions:
- How will taking out a home reversion affect your Income Tax position and your eligibility for state or local authority 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?
- Can you transfer the home reversion scheme if you want to move home?