Home Reversion Plan vs Equity Release

What is an Equity Release Lifetime Mortgage?

An Equity Release Lifetime Mortgage allows you to borrow against the value of your home. You don’t have to make any payments on the loan during your lifetime if you don’t want to.

Instead of making monthly payments like a regular mortgage, you repay the capital borrowed, plus interest ‘rolled up’ into the loan, when the house is sold. This is typically after you move into long-term care or pass away.

For this reason, Lifetime Mortgages can become expensive over time as the interest is rolled up and compounded each year. This can eat into the amount of capital you can leave to beneficiaries from your home.

To keep a lid on costs, some people opt to make regular or ad hoc interest payments on their Lifetime Mortgages. This is only an option on Lifetime Mortgages, not on Home Reversion Plans, and not every provider will allow you to do so, so if this is your intention it’s important to discuss it with your adviser first.

When you borrow against your home, you retain the right to live in the property for as long as you want to, potentially for the rest of your life or up until you move into long-term care.

What is a Home Reversion Plan?

If you enter into a Home Reversion Plan, you agree to sell some or all of your house to an Equity Release provider for less than the market value. This is typically 20% to 60% of what the home is worth on the open market, depending on your age and state of heath.

Thereafter, the Equity Release provider then owns a set proportion of your property.

When the house is later sold, usually after you move into care or pass away, the Equity Release provider is entitled to a slice of the profits from the sale equivalent to the proportion of the house they own.

So if they took a 20% stake in your property, they’re entitled to 20% of the market sale price when you sell your home.

Home Reversion Plan vs Lifetime Mortgage

What’s the Best Equity Release?

The best equity release for you will depend entirely on your circumstances, although Lifetime Mortgages are by far the most common type of scheme in the UK.

Lifetime Mortgages

With a Lifetime Mortgage, the amount of equity you own in your property could fall as the interest you owe the provider mounts up. Although some plans allow you to protect or ‘ring fence’ a proportion of your property to leave to beneficiaries, not all schemes allow this.

This could see the amount you owe increase considerably, especially if you live for a long time after releasing equity. You could end up having little or no equity left in your property.

However, with a Lifetime Mortgage from an Equity Release Council-approved member, you’ll receive the ‘no negative equity guarantee‘.

Home Reversion Plans

With a Home Reversion Scheme, the proportion of the property you sell to the provider doesn’t change over time. If you sold 20% of the property, you’ll continue owning 80% of the property going forward unless you choose to draw further cash from your home.

However, with a Home Reversion Plan you sell the proportion of your home at a significant market discount. This means you won’t get anywhere near the full value of the property. Moreover, you miss out on any gains in house prices on the proportion of the property you sold.

Equity Release Help and Advice

Drewberry has partnered with the trusted Equity Release Provider Responsible Life to offer our clients access to the best Equity Release Advice.

Responsible Equity Release was founded in 2010 and is part of the Equity Release Council. It is also authorised and regulated by the Financial Conduct Authority and is one of the largest UK equity release advisers, with access to every single provider across the marketplace. 99% of its reviews on independent reviews website Trustpilot are listed as 5-star.