What Is a Home Reversion Plan and How Does It Work?

A home reversion plan offers homeowners a way to access equity built up in their property without needing to relocate. This financial arrangement involves selling a portion or the entirety of a home’s value to a provider. In return, the homeowner receives a tax-free lump sum payment, a regular income stream, or a combination of both. A defining characteristic is the continued right to reside in the property rent-free for life.

What Home Reversion Entails

A home reversion plan represents a sale of property equity, distinguishing it from a loan. Under this arrangement, a homeowner transfers a specified percentage of their home’s ownership, or even 100%, to a home reversion provider. In exchange for the sold share, the homeowner receives a financial payout, typically a tax-free lump sum or a series of regular payments.

A core feature is the homeowner’s retained right to live in the property. This right is secured through a lifetime lease or tenancy agreement, ensuring occupancy until death or permanent relocation into long-term care. The provider becomes the legal owner of the acquired share, while the original homeowner retains a leasehold interest.

The payment received for sold equity is typically less than its full market value. This reduced payment reflects the provider’s investment perspective, as they acquire a future interest but cannot realize its value until the homeowner vacates. The discount accounts for the duration the provider must wait to gain full control and sell their acquired share.

How Home Reversion Works

The amount of money a homeowner can receive is influenced by several factors. These include the homeowner’s age, health status, the property’s current market value, and the percentage of equity chosen to sell. Older individuals or those with certain health conditions may be offered a larger percentage, as the provider anticipates a shorter waiting period.

When the last homeowner dies or permanently moves into long-term care, the home is sold. The proceeds are then divided between the homeowner’s estate and the home reversion provider. This division occurs based on the ownership percentages agreed upon when the plan was established. For instance, if 30% of the home was sold, the provider receives 30% of the sale proceeds.

Homeowners typically retain responsibility for ongoing property maintenance, utility payments, and property taxes. A significant aspect of home reversion plans is the absence of monthly interest payments.

Any appreciation or depreciation in the property’s overall market value affects both parties proportionally. If the property’s value increases, both the homeowner’s retained share and the provider’s purchased share grow in value. Conversely, a decline in property value would similarly impact both parties based on their respective ownership percentages.

Eligibility and Property Criteria

Eligibility for a home reversion plan typically centers on the homeowner’s age, with most providers requiring applicants to be at least 60 or 65 years old. If the property is jointly owned, all homeowners usually need to participate, and the youngest applicant’s age determines eligibility.

The property must generally be the applicant’s main residence and meet minimum value requirements. Freehold properties are generally accepted. Leasehold properties may qualify if there is a sufficient remaining term on the lease. If an existing mortgage is present, any outstanding debt typically must be repaid when the plan takes effect, often using plan funds.

Before proceeding, applicants must seek independent financial and legal advice. This ensures individuals fully understand the implications, benefits, and potential drawbacks of the plan, helping them make an informed decision.

The Application and Completion Process

Initiating a home reversion plan typically begins with an inquiry to a provider or financial advisor. During this preliminary stage, the homeowner may receive a personalized illustration outlining potential funds available based on their age and property value.

Following this, the provider arranges a professional valuation of the property. This valuation determines the home’s current market value, a key factor in calculating the equity the homeowner can release. The offer presented is directly influenced by this valuation and the homeowner’s personal circumstances.

Upon offer agreement, the process moves into the legal conveyancing phase. This involves solicitors acting for both the homeowner and the provider. Legal procedures include property searches, lease agreement review, and formal ownership transfer for the sold share.

Completion marks the finalization of the plan. The agreed-upon funds are released to the homeowner, either as a lump sum or regular income payments. After completion, the homeowner continues to live in the home under the lifetime lease, responsible for its upkeep and routine expenses.

Key Differences from a Lifetime Mortgage

Home reversion plans and lifetime mortgages are both forms of equity release, yet they differ significantly in their fundamental structure. A home reversion plan involves the outright sale of a percentage or all of your home’s equity, transferring ownership of that share to the provider. In contrast, a lifetime mortgage is a loan secured against your home, allowing you to retain full ownership.

A notable distinction lies in the payment structure. With a home reversion plan, there are no monthly payments, as it is a sale of an asset. Conversely, a lifetime mortgage accrues interest on the borrowed amount, which is typically rolled up into the loan balance.

The impact on inheritance also varies. A home reversion plan directly reduces the portion of the property’s value that will remain for your estate, as a share has been sold. With a lifetime mortgage, the full property remains part of the estate, but the accumulated loan amount and interest must be repaid from the sale proceeds, reducing the net inheritance.

Future property value changes affect the parties differently. In a home reversion plan, the provider benefits from appreciation on their purchased share, while the homeowner benefits from appreciation on their retained share. With a lifetime mortgage, the homeowner benefits from the full appreciation of the property’s value, though the loan amount also grows.