A home reversion plan is a form of equity release where you sell all or part of your property to a provider at a discount to its market value. In return, you receive a tax-free lump sum, regular income payments, or both. Crucially, you retain the right to continue living in the property rent-free (or for a nominal rent) for the rest of your life.
The discount applied to the market value reflects the fact that the provider cannot sell or benefit from the property until you move out or pass away. Typically, you might receive 20-60% of the market value of the share you sell, depending on your age at the time. The older you are, the higher the percentage offered.
Home reversion plans are less common than lifetime mortgages, partly because you are giving up ownership of part (or all) of your home. However, they can be attractive if you want a guaranteed sum without the risk of interest rolling up. When the property is eventually sold, the proceeds are split according to the ownership shares. If you sold 50% of your home, the provider receives 50% of the sale price, regardless of how much the property has grown in value.
You are 75 and own your home worth £300,000 outright. You sell 40% to a home reversion provider and receive £72,000 (40% of value at a 40% discount). You continue living in the property rent-free. When you eventually pass away, the property sells for £400,000. The provider receives 40% (£160,000) and your estate receives 60% (£240,000).
Key Points
- You sell a share of your home in exchange for a lump sum or income
- You retain the right to live in the property rent-free for life
- The provider pays below market value for their share
- No interest rolls up as there is no loan involved
- The provider's share grows in line with property values