Home reversion schemes are financial plans that are available to individuals who are in the “golden” years of their life, past the stage of a Lifetime Mortgage.
For these plans, the minimum age of the applicant is 65 years old and often the older the applicant is, the better terms that can be secured.
For the part of the property that remains unsold, escalation of its value will be retained by the applicant but the burden of maintenance and upkeep, both labor and the cost, will remain with the applicant.
What is the Exchange Rate for the Partial Sale of the Property?
The calculation for the exchange rate of the partial sale of the applicant’s property is based on the applicant’s age, his or her gender, and the value of the property. The amount of money exchanged by the reversion company will be heavily discounted by that fact the applicant will continue to live in a portion of the home or on the property without having to pay rent for the remainder of his or her life.
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Because of this, the younger the applicant is the less financing they will receive – for example, if a 65-year-old male sold 100 per cent of his property, he would receive a 35 per cent lump sum payment.
Why are Home Reversions No Longer Popular?
The popularity of Home Reversions has dramatically declined over the last few years. Current statistics show that only two per cent of all equity release sales are completed using home reversions. One of the reasons for this is applicants often feel uncomfortable with the idea that they will no longer own 100 per cent of the property. For many homeowners, this is a huge discomfort even if the equity is being released.
In addition to property ownership being an issue, an early death can often cause a home reversion to be an expensive way to release equity in a home. Although all of this may seem negative, it is important to note that some home reversion schemes allow for an early vacancy, which will guarantee a minimum payment should the borrower pass away or leave the home within the first five years.
What are the Advantages of Home Reversions?
Although this type of loan is no longer the most sought out option, Home Reversions have a number of advantages that make this type of loan a good choice for releasing the equity in a property. First, the applicant can guarantee the amount of inheritance by selling part of the property and will have no monthly payments or interest charges from the loan company.
Additionally, these schemes often offer a much larger lump sum than some of the other equity release schemes that are more popular options.
When the housing market is stagnant, a home reversion is still a favourite way to release the equity in a property and the application fees can be much lower than with a lifetime mortgage or roll-up plan.
Finally, if only a portion of the property is sold in a home reversion, there is still the option of selling the remaining portion of the property, later on, to help obtain the rest of the equity that is available. Depending on the applicant’s situation, these advantages may be appealing.
What are the Disadvantages of a Home Reversion?
Like with any equity release scheme, there are some disadvantages that come along with choosing a home reversion. First, the most obvious disadvantage is that the applicant will give up owning 100 per cent of the property.
Also, the minimum age to apply for this scheme is 65 years of age, which is older than the minimum age requirements for other equity release schemes. Additionally, the applicant will not receive the full market value of the portion of their property since it will be sold at a discounted price.
Doing a home reversion, or any equity release scheme is a huge decision for a property owner and his or her family. These decisions should always be discussed with a partner or family members before moving forward with this type of plan.
In addition to this discussion, interested individuals should also get in touch with an independent equity advisor – a knowledgeable advisor will be able to help make the best financial decision.