Pros and Cons of Home Reversion Plans UK
Home reversion equity release plans take up about 2% of the entire UK market, with financial analysts expecting them to grow in popularity over time since the government has begun regulating them. Home reversion plans UK main features include the fact that you can either sell the home entirely or a portion of it to a reversion company for a lump sum payment, a monthly income or even a combination of both, which is what makes the plans very attractive to many people.
Additionally, you can continue living in the home without paying rent for the rest of your life, which is a great advantage. The property is only sold when you die or go into long-term care. The reversion company receives whatever percentage of the home that you have sold them, whether you have sold the full 100% or a partial amount of the property.
If you choose to sell the entire home to a reversion company such as Bridgewater, you will most likely get anything between 30 and 60% of the current value depending on your partner’s age. Older people will usually receive more money in exchange for their equity.
Home reversion plans UK are not your only option for after retirement. They may have arrived on the scene first; however, regulations and the need to offer a more varied product has brought about the lifetime mortgage concept. Lifetime mortgages come in roll-up, drawdown, enhanced, and interest-only options. For many they are considered the more flexible option albeit they have their disadvantages too.
Lifetime mortgages are a loan. You have a repayment to make. The difference between mainstream mortgages on property is when the repayment is due. When you have a 30 year fixed mortgage on your home you pay a monthly payment that covers interest and the principle.
Any of the lifetime mortgages will allow you to pay back the mortgage when you sell the home or die. The loan amount is based on the equity you have in your home. Since the loan provider has to wait until you are ready to vacate the house and sell it or pay off the loan, the amount provided is usually smaller than 100% of the home value.
You can pay on the mortgage if you have extra funds. You can also choose the interest-only lifetime mortgage in which you pay on the interest the loan will accrue during your lifetime. By paying interest, at the time of your death, you will only owe the principle of the loan. Home reversion plans UK do not require any payment upon death or before death from you.
Main benefits
• The plan offers more money than a lifetime mortgage
• You can retain a percentage of the home to give away as inheritance to your heirs
• You can release a part of the home and release further portions in future, allowing you to maximize on property gains
• You do not have financial obligations or debt
• You are eligible when you are aged between 65 and 80
Disadvantages
• You do not get any benefits from your property appreciation
• You no longer own all the property nor have control over it
• Your age and health will determine the discounts that you can get
Home reversion plans use a lifetime tenancy agreement to keep you in your home. The agreement allows one or all individuals in the home to remain until the end of their lifetime. You do need to put all people living in the home in the reversion plan and name them in the lifetime tenancy agreement to ensure they have the right to occupy the house.
Since there is an age limit for the home reversion scheme, it usually only covers anyone that is 65 years or older in the home. If someone needs to move out to a long term care facility, the remaining members on the agreement can remain in the house. It is only when the last individual moves out or dies that the house is sold by the home reversion provider.
Overall, home reversion plans UK are a great solution for retirees, and to get the best advice based on personal circumstances, speak to a financial adviser before settling for any equity release plan. Ask any questions you have about these plans and the pros and cons to ensure you have full understanding before you sign paperwork. Plans such as those offered by Bridgewater offer different variants and you can choose the one that suits you best.
