Equity release explained Home reversion
A home reversion provider will offer you below market value for a share of your home
There were only four providers offering home reversion schemes in March 2010, compared with eight in July 2007.
As with lifetime mortgages, you have to pay legal fees and, in most cases, a valuation fee. Only the Aviva product currently has an application fee (£600).
You can usually sell between 25% and 100% of your property to the provider, depending on the product, but the amount you get in return will be significantly less than that share of the market value. The actual amount will depend on your age – the older you are, the more you’ll get.
Home reversion examples
For example, if you’re a couple aged 65 and you want to release £40,000 from a £200,000 property, you’d have to sell around 58% of it to get this through the Bridgewater or Hodge schemes. You’d have to sell as much as 71% with Home & Capital. A 70-year-old man wanting to do the same would need to sell 42% of the property with the Hodge and Bridgewater schemes and 45% with Aviva.
As the amount you get for the share you sell depends on your life expectancy, this is a particularly expensive way to borrow if you die within a short period of taking out the scheme. However, some give you the option of an ‘early vacancy guarantee’, which means that your estate is guaranteed to get a certain percentage of the property’s value back if you die or move into long-term care within the first four or five years.
Though all the schemes are portable, it could be even harder to move to another property with a home reversion scheme, as the provider owns a relatively large share of your equity.
- For more information on equity release, talk to our experts on the Which? Money Helpline
- For alternative options, take a look at our guide to annuities
