Home Reversion Plans

The principal alternative to equity release (other than trading down to a cheaper property) is do a home reversion.

These schemes have been regulated by the FSA since April 2007 and involve you selling a percentage share of the value of your home to a reversion company in return for a fixed lump sum, or an income for life.

You continue to live rent free in the property for the rest of your life, but remain responsible for its repair and maintenance and all household-related bills.

On death, the reversion company sells the property and receives the value of the percentage you sold it, while your estate will receive the value of the proportion of the property you retained.

For instance, if you sell 50 per cent of a £200,000 property, you know that your estate will receive 50 per cent of the prevailing value of your property when you die. So if the house is worth £300,000 when you die, your estate will receive £150,000.

This makes home reversions schemes attractive to people who want to know that they will be a ble to bequeath a certain percentage of the value of their home to their heirs when they die.

By contrast, with a lifetime mortgage, it is impossible to know at the outset how much equity, if any, will remain for your heirs, when the property is eventually sold.

The amount that a reversion company will offer you depends on your age, state of health and gender. This is because the reversion company will be making a guess as to your likely life expectancy.

Warning!

The only way to extract the full market value from your property is to sell up and trade down.

Both lifetime mortgages and home reversions effectively require you to sell your home at a deep discount in return for cash.  With a lifetime mortgage, there may be no equity left in the property at all by the time you die.

Anticipated trends

Over the next 25 years, the number of people of pensionable age is expected grow by 50 per cent to 15 million by 2020. These people will need additional capital or income in retirement, either because they face hardship in retirement or because they want to improve their quality of life.

The Institute of Actuaries estimates that there is £1,100 bn of largely untapped housing wealth owned by the over 65s and that 4.3 m retired people could benefit by releasing equity from their homes.

In 2006, the equity release market was worth around £1.5bn and this is expected to reach £3bn by 2012, according to SHIP.

Poor pensions, incresaing life expectancy and higher lifestyle aspirations mean that many of today’s pensioners want extra cash, not just to pay the household bills, but to maintain a decent standard of living and to be able to splash out on a few of life’s luxuries from time to time.

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