Equity Release

A home reversion plan is a type of equity release where you sell a share of your property to a reversion provider. Unlike a lifetime mortgage, you are not borrowing money. You are making an actual sale of part or all of your home.

The process works in several steps:

• You choose how much to sell. You can sell anywhere from 25% to 100% of your property. The more you sell, the larger the lump sum you receive.
• You receive a below-market-value price. Because the provider cannot take possession until you pass away or move into care, the price reflects this delay. A 75-year-old selling 50% of a property worth £300,000 might receive around £45,000 to £75,000 rather than £150,000.
• You keep a lifetime lease. This guarantees your right to live in the property rent-free for the rest of your life. Both you and your partner can be named on the lease.
• The provider receives its share on sale. When the property is eventually sold, the provider receives the percentage it purchased. If you sold 50%, the provider gets 50% of the final sale price, whether the property has risen or fallen in value.

The entire arrangement is set up through a solicitor, and you must receive independent legal advice before completing the plan.

Home reversion plans have stricter eligibility requirements than lifetime mortgages. Most providers set a minimum age of 65, though some plans require you to be 60 or older. The property must be your main residence in the UK and typically needs to be worth at least £100,000.

Key eligibility criteria include:

• Age. You must usually be at least 65. If you are applying with a partner, the age of the younger person is used to calculate the offer. The older you are, the higher the percentage of market value you typically receive.
• Property type. Standard construction houses and flats are usually accepted. Non-standard construction, properties with short leases (below 80 years), or homes in poor condition may be declined.
• Outstanding mortgage. Any existing mortgage must be repaid as part of the arrangement. You can use part of your home reversion lump sum to clear it, provided enough equity remains.
• Health. Some providers offer enhanced terms if you have certain health conditions, as a shorter life expectancy means the provider is likely to receive its share sooner. Conditions such as diabetes, heart disease, or a history of stroke may qualify for better rates.

If you are under 65 but want to release equity, a lifetime mortgage from age 55 may be a more suitable option. Speak to a qualified advisor to understand which product fits your situation.

The amount you receive depends on your age, health, and the percentage of property you sell. As a general guide, you can expect to receive between 20% and 60% of the market value of the share you sell. Older applicants receive a higher percentage because the provider expects to wait a shorter time for its return.

Here is a simplified example of what you might be offered based on age, assuming a property worth £250,000 and selling a 50% share:

These figures are indicative. Your actual offer will depend on the specific provider, your health status, the property location, and current market conditions. An equity release advisor can obtain personalised quotes from the whole market to show you the best available terms.

It is also worth noting that some providers allow you to take the money in stages rather than as a single lump sum. This can help reduce the impact on means-tested benefits and give you flexibility over when you access the funds.

Home reversion plans have distinct advantages and drawbacks compared with other forms of equity release. Understanding both sides helps you make a balanced decision.

Advantages:

• No interest charges. Because you are selling rather than borrowing, there is no loan balance rolling up over time. This is the biggest difference from a lifetime mortgage, where compound interest can significantly reduce the remaining equity.
• Guaranteed rent-free occupation. Your lifetime lease gives you legal security to remain in the property for life.
• You benefit from remaining equity. If you sell 50% of your home and the property doubles in value, your remaining 50% share also doubles. With a lifetime mortgage, rising interest can erode this benefit.
• Fixed inheritance share. Your family inherits a known percentage of the property value, making estate planning more predictable.

Drawbacks:

• Below market value. You receive significantly less than the open-market value of the share you sell. A 70-year-old might receive only 30% to 35% of market value.
• Limited provider choice. Fewer companies offer home reversion compared with lifetime mortgages, which limits competition and can affect the terms available.
• Higher minimum age. Most plans require you to be 65, whereas lifetime mortgages start from age 55.
• Potential impact on benefits. A large lump sum could affect your entitlement to means-tested benefits such as Pension Credit or Council Tax Reduction.

Home reversion and lifetime mortgages are the two main types of equity release, but they work in fundamentally different ways. The right choice depends on your age, how much you need, and what you want to leave for your family.

For many homeowners, a direct comparison between the two reveals that lifetime mortgages offer more flexibility and higher initial payouts, while home reversion provides certainty about what your estate retains. A drawdown lifetime mortgage can reduce interest costs by only borrowing what you need, which narrows the gap.

The best approach is to compare both options with a qualified advisor who can model the long-term outcomes based on your specific property value, age, and financial goals.

Before committing to a home reversion plan, you should work through several important considerations with your advisor.

• Your age and health. If you are under 70, the amount offered will be relatively low compared with market value. Waiting a few years could significantly increase your offer, but only if you do not need the money now.
• Alternative options. Have you considered alternatives to equity release such as downsizing, renting out a room, or using savings? An advisor should discuss these before recommending any equity release product.
• Impact on inheritance. While home reversion preserves a known share, the portion you sell goes to the provider. Consider how this affects your beneficiaries and whether you have discussed it with your family.
• Benefits entitlement. A lump sum could push your savings above the threshold for means-tested benefits. Taking the money in stages rather than all at once may help manage this.
• Costs involved. Home reversion plans involve setup costs including legal fees, a valuation fee, and potentially an arrangement fee. These typically total between £1,500 and £3,000.
• Moving home. Check whether the plan allows you to transfer the arrangement to a new property if you move. Most Equity Release Council plans include portability, but the new property must meet the provider's criteria.

A qualified equity release advisor will walk you through each of these points and help you understand whether a home reversion plan is the right fit for your circumstances.