Home Reversion Plans

We have seen there are two types of equity release scheme out there. One of these is a home reversion plan, but what exactly does this refer to?

A home reversion plan is the process whereby you sell the house, or part of it, to the provider of the equity release home reversion plan, whilst being allowed to live there rent free for your lifetime.

Practically then, what does this mean financially? Well, let's say you sell them a 25% stake in the house. When the property is sold, your estate will get 75% and the provider will take their 25%. Sounds too good to be true, so what's the catch? Well, you will be offered by the lender notably below the market value for the share you sell, so to all intents and purposes it means your home is ultimately sold for less than its worth.

This means that if you are concerned about leaving the maximum possible value to your estate then you will need to consider carefully whether the home reversion plan is right for you, as it could mean that your house ultimately gets sold for much less than it is worth, and if sadly you were to die very soon after the plan is taken out, then you will have gained little benefit but lost a fair sum of money for the estate.

On the other hand, if you are expected to live for a long time after you undertake this form of equity release, then the lender expects that they will have to wait longer to get their money back from when the property is sold, and this in turn will mean that you are likely to get offered less for the share of your house that you sell to the lender.

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