What is the difference between equity release and home reversion?

Home reversion is a different type of equity release than a lifetime mortgage. Home reversion schemes mean that all or part of your home is sold to an investment company. These are called `Reversion Companies`. In return they will give you a cash lump sum, or an income for the rest of your life and sometimes a combination of both. You are able to remain in your home on a guaranteed lease as a tenant for the rest of your life. Rent may be payable but is often only a notional amount. This is termed `peppercorn rent`, basically meaning zero will be paid.

Lifetime mortgages are secured on your home by way of a charge, like a traditional mortgage, you retain ownership of the property. Interest is added or `rolled up` onto the amount borrowed instead of you making ongoing repayments. So this number can get quite large depending on how long you live. Most companies offer a non negative equity guarantee to ensure your estate is not left with a debt at the end, although there may be no equity left either.

The big difference in technical terms for a reversion plan is that you then a tenant of the reversion company, although still live there you are no longer the homeowner. To ensure your residency the tenancy will be under what is called a `lifetime lease`. With a lifetime mortgage you are still the owner but your property is mortgaged to the lifetime mortgage provider (lender)

This can be difficult to grasp so probably the best way to explain is to give you an example of a home reversion plan.

"Steve, 69, takes out a home reversion plan. He sells half (50%) of his home to a home reversion company. His home is valued at £200,000. The company offers him a lump sum of £40,000, which is 40% of the market value of the half share. When Steve dies 15 years later, his home, which is now worth £250,000, is sold. The reversion company takes £125,000, which is their share (i.e. 50%) of the selling price, leaving the rest for Steve`s estate & beneficiaries."

Because you are continuing to live in the property and it is unknown when the reversion company will get their money back, you will not get the full current market value of your property. Selling all of your property to the reversion company will mean that you will typically only get between 30% and 60% of its value at the time of sale. this is known as a discounted sale. The reason for the lower amount is because the lender is giving you the money now, but will not see any return until the property is sold. Figures are calculated taking into consideration your age and that of your partner`s and older people will usually get more. Single men may also get more than single women, because women are expected to live longer.

If you are selling your home along with your spouse or partner, it would only be sold by the reversion company after the last of you die or moving into long term care. Any money left after the sale would go into your estate as usual, unless you had sold 100% of your property to the reversion company.

The Advantages of Home Reversion Plans...

For some people higher amounts can be released compared to Lifetime Mortgages.

Home reversion plans can be available if you are aged 60+ and typically you will be able to raise more money from your property than with a lifetime mortgage.

More money will be available for release the older you are.

It is possible to guarantee an inheritance for your beneficiaries.

There are no payments to be made along the way, with the reversion company making its profits when the property is ultimately sold.

Right from the start you will know what share of your property - although not its value - you will be leaving to your estate.

Any rise in the value of the property will still benefit you unless you have sold 100% of the value.

Extra cash advances can be taken, depending on the amount which you originally took and rules of the agreement.

The disadvantages of Home Reversion...

The reversion company will pay you less than the current market value.

Because the reversion company will want to buy from you with a big discount on the market value, these schemes are less suitable for people in their 60`s. Usually you will not get the full market value of the share of the property you sell because you remain in the property, with an absolute right to live in it rent free (or for a nominal rent) for the rest of your life. Of course, therefore, the younger you are the longer it will take for the home reversion company to make their money back.

As the reversion company will own a percentage of your home they will also benefit from any increase in its value.

As you are selling a percentage (or all) of your home, reversion plans cannot usually be `reversed`.

Should you die within a short time after taking out the plan, you could have sold your house (or a share of it) very cheaply. Some home reversion schemes however, do offer a rebate to families via your estate if your death were to occur within the first few years.

Reversion Companies do not have to agree to take any property and they may not agree to take yours for home reversion.

PLEASE NOTE AS HOME REVERSION SCHEMES ARE A SMALL SECTOR OF THE EQUITY RELEASE MARKET FIRST CHOICE FINANCE DO NOT SELL OR OFFER ADVICE ON THEM. FIRST CHOICE ARRANGE LIFETIME MORTGAGES FOR EQUITY RELEASE ALONGSIDE REMORTGAGES, SECURED LOANS AND RETIREMENT INTEREST ONLY MORTGAGES (R.I.O.M.s)

We will make sure that whatever your current needs and requirements, First Choice Equity Release Solutions will work through all of the options we offer and explain things simply and clearly, so that you have the confidence to make the right decision for yourself and for your family.

Equity Release Lifetime Mortgages This is a lifetime mortgage. To understand the features & risks ask for a personalised illustration. Our fee is £985 which is only payable upon completion. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME, OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE.

Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk

Established In 1988. Company Registration Number 2316399. Authorised & Regulated By The Financial Conduct Authority (FCA). Firm Reference Number 302981. Mortgages & Homeowner Secured Loans Are Secured On Your Home. We Advice Upon & Arrange Mortgages & Loans. We Are Not A Lender.

First Choice Finance is a trading style of First Choice Funding Limited of 54, Wybersley Road, High Lane, Stockport, SK6 8HB. Copyright protected.