Home reversion has seen a steady decline in popularity over the past 5 years despite the lifetime lease option. A home reversion plan is a form of equity release scheme whereby one exchanges part of their property for a lump sum of money or income. Comparing most of the features of this plan with features of other plans, this has proven a less attractive plan and most people will avoid it and instead go for the more flexible options which are the lifetime mortgage range of schemes.
With a home reversion plan, one becomes a co-owner of their property with the person they sell it to and therefore have limited enjoyment of the appreciation of the price of this property. In fact, one can never count on any profit in the escalation of property value on the portion they do not own anymore. This limited co-ownership is a major turn off for most potential equity release applicants as sharing the ownership of a home they own does not sit comfortably with most.
However, home reversion plans do have some advantages over their lifetime mortgage counterparts. One of these is the introduction of a lifetime lease which the home reversion provider will offer the applicant. This gives the right for the home reversion applicant to remain living in the property, no matter what, for the rest of their life.
Anyone named in the lifetime lease is able to remain in the property, as long as they are also named in the home reversion plan. It includes anyone who is 65 years or older living in the home, if named. The concept allows a married couple to stay in their home until the last surviving person has to move out or dies.
The older the person is the more amount of money that can be released. For example, a male person aged 70 years with a property value of £200,000 can receive up to £83,000 but in return must surrender up to 100% of the property. Younger people, who happen to be most of the ones seeking such plans for home loan repayment, get far much less than what the elderly get. This thereby facilitates the drop in popularity of this plan.
The most important benefit of the home reversion plan can be the fact that ownership of the property not surrendered can be hereditary. This means that if one dies, his heirs can take up ownership under the same guidelines and specifications agreed upon by the deceased and the company offering the plan. However, with any surrendered part, if sold at a much higher price, one is not entitled to getting any share of the profit. In fact, in the long run, one gets much less the amount he could have received under other plans.
Another option that does not use lifetime lease options is lifetime mortgage schemes. These schemes are a mortgage often referred to as a reverse mortgage because repayment is not owed until the person dies or they decide to sell the home and move to a full time care location. The mortgage provides equity to the homeowner, so that they can live on the money.
The only option under lifetime mortgage schemes that require a monthly payment is the interest-only lifetime loan. You pay interest for the amount borrowed. At time of death or when the owner decides to sell the home, the principle loan amount is due.
There are definite advantages to keeping ownership of one’s house. It can be passed on to family members, without the need to sell or care what the loan company might need to do with it to get their money back. This type of scheme means the loan provider is happy as long as payment on the loan is made. The principle cannot change unless more money is withdrawn in equity. When the price increases, the home can be sold for that higher price ensuring an inheritance. Of course, the home price might devalue which could mean no inheritance.
Under most circumstances, the home reversion plan can work out far more expensive than a lifetime mortgage. The main difference is there is no worry about losing one’s right to stay in their home because of the lifetime lease. In this plan, if the interest rates were to go up, or house prices to considerably depreciate over the long term, the comparison then would be closer. Home reversion however still remains a less attractive plan, thus its significant drop in its market share.