What is a home reversion plan?
A home reversion plan sees you selling a stake in your property in return for a cash lump sum.
By selling a share of your property, you become a co-owner but continue to enjoy the right to live in it for the rest of your life.
You surrender a percentage of your property in exchange for a sum based on its current value, but the ultimate cost is based on its price at the end of the deal.
You can usually sell between 25% and 100% of your property to the provider, but the amount you get in return will be significantly less than that share you surrender.
The main providers of home reversion schemes are currently Bridgewater and Newlife.
Which? Mortgage Advisers can explain your options, including remortgaging to a better deal and retirement interest-only (RIO) mortgages.
Unfortunately they are unable to advise on equity release policies.
How much can I borrow with a home reversion plan?
In the same way that lifetime mortgage lenders vary the amount they are prepared to advance according to age, home reversion providers demand a bigger share of equity from younger borrowers and less from those that are older.
But it is very expensive. This is an example of how home reversion might work.
A 65 year old couple with a home worth £250,000 may be able to borrow £50,000 as a lump sum - around 20% of its current value.
However, that lump sum would come in exchange for a 70% share of the property. If property prices rise by 1% each year, the £250,000 house would be worth around £320,000 after 20 years.
At this point, the firm’s share would be £238,000 and the couple’s just £82,000 making home reversion an incredibly expensive way to borrow and far more expensive than a lifetime mortgage.
The chart below shows how this works.