Home Reversion

Home reversion is one option homeowners have to obtain equity from their home when they are asset rich, but cash poor. For some homeowners, home reversion is the better option based on the advantages versus disadvantages. As a homeowner, you never have to go with a product that makes you feel less than comfortable. By learning about home reversion products you will be able to make a decision on whether it is the right option for you or not.

Defining Home Reversion
Home reversion is a property sale. It is not a loan or mortgage. It does not require repayment with interest like other equity releases on the market. For property sales you elect how much of the home you are willing to sell to the home reversion provider. Most providers will have a minimum amount such as 50% of the home must be sold in the initial sale. Other providers may require less. This is where comparing different providers can be beneficial to determine how much of the home you need to sell to fulfill qualifications, as well as gain the amount of funds you require for a more comfortable retirement.

You do have the option of selling 100% of the home; again it will depend on your comfort level.

Government Regulations
Home reversion products are regulated by the Financial Conduct Authority and Equity Release Council. They are part of the safe home income plan (SHIP) and adhere to the Code of Conduct standards required. A part of government regulation has been to ensure all providers stick to the ‘no negative equity’ guarantee. This guarantee prevents any provider from seizing other assets beyond the home.

How Home Reversion Works
Providers are in the market to earn on their investment. It is a long term investment. Qualifications require the youngest homeowner to be 65 years old. There is a chance that the homeowner could live to be 100, thus there could be 35 years of an investment the provider is waiting to recoup.

The home is sold in full to the home reversion provider when the homeowner dies or moves to a long term care facility. Any part that was not originally sold when the homeowner was alive is the remaining investment for beneficiaries. In other words, the beneficiary will receive payment for the unsold part.

Once the home is vacant and fully owned by the provider, the company will sell it at current market value. The idea is the amount provided to the homeowner is lower than the actual value based on a loan to value percentage. So the difference of funds provided to the homeowner and the current value is the investment.

To understand whether you qualify for a home reversion plan, use our free smartER research tool.

Home Reversion Calculator – See how much money you can release

Advantages
• There is no interest or loan to repay
• A long term tenancy agreement is in place
• If the home depreciates the company cannot seize other assets

The disadvantage is that homeowners will have to sell a part of their home while they are alive, which may not be the most comfortable situation. One also receives a lower value than the house is worth and the house will no longer be in the family.