Home reversion is a type of equity release, but it does not fall under the lifetime mortgage category. Home reversion is not a loan, but a choice to sell a part of the home or the entire home. In return for selling the home a homeowner receives a percentage of the current market value as well as a lifetime tenancy to remain in the home until they desire to move or die.

How the sale works

As a homeowner, you determine how much you are comfortable selling of your home. You may base the amount on your financial needs and most homeowners do. You can also base it on retaining most of the ownership of your property to enhance your comfort level. Your financial situation should be used to make a decision.

The home reversion provider is going to assess your age and property. There are qualifications to obtain the loan. The first is your age. Homeowners must be at least 65 years of age to qualify. Age determines life expectancy. The longer a person has to live, meaning an average health adult based on specific mathematical tables, the longer it takes the home reversion provider to obtain full ownership of the property and sell it for their return on investment (ROI).

The property value determines the amount of equity in the home. The home has to be owned in full with no outstanding mortgage to qualify. Each provider also has certain qualifications based on UK locations. Some providers only offer home reversion in England and Wales and others in all four countries. The more equity in the home the more one can obtain from the “loan to value” percentage. It is often referred to loan to value because the provider is assessing how much the company is willing to provide based on value.

Someone who is 65 and sells 50% of their home may receive 20% in actual equity, while someone who is 85 selling the same amount may receive up to 30%. These are just example percentages to illuminate the point of loan to value percentage.

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Home Reversion Advantages

• There is no outstanding loan to pay back
• Any portion of home left unsold is inheritance for the beneficiaries
• You elect how much to sell
• You gain tax free cash

Disadvantages of Home Reversion

• Most providers have a minimum amount of property you must sell to make the process worthwhile
• There is an age minimum
• The property must be located in their qualification areas
• You lose part or all of your ownership

Obviously any financial product you take on is going to have disadvantages and advantages. Weighing these pros and cons against lifetime mortgages will help you determine the ultimate affordability and comfort you have with the product of choice. Home reversion alleviates concerns about repayment. It does cost the family home since it is sold, yet there is a guaranteed inheritance as long as the homeowner still retains ownership of a portion of the home.

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