Description

A scheme whereby a homeowner exchanges part or all of the equity in the home for a capital sum or income.  You can live in the property for the rest of your life, but you will no longer be the sole owner and some providers will even charge you a nominal  rent.

Examples of Use

Elderly people who have capital locked in their homes and have capital or income requirements.

Advantages

• Freedom of investment/spending choice.
• Greater benefit for higher value properties.

Disadvantages

• When you take out a Reversion Scheme you will not receive ‘full market value’ of the property, but a percentage of it according to your age and sex.
• All or proportion of potential increase in property value foregone.
• Significant reduction in your estate and hence inheritance you can leave to your heirs.
• Can affect eligibility for State Benefits.
• These schemes will require you to incur costs in the forms of solicitor’s fees, costs of having your home valued by a surveyour and possibly also an administration fee charged by the lender as well as the company arranging the scheme.
• If someone moves into the house with you after you take out a scheme they may not be able to stay in the property after your death.  This is because the scheme would come to an end and the property would have to be sold.  It is important to talk to the scheme provider about the implications.

Points of Interest

• If you wish to move home in the future you should choose a scheme that clearly offers this option and allows you to ‘transfer’ the scheme to your new property.
• Also you should check whether there would be any penalty if you wished to end the scheme before your death, for example – if you were to sell up and move in with your children or into rented sheltered housing or a care home.
• Generally, equity release can be suitable for homeowners who are over age 55 and who own a property worth at least £80,000.
• Reversion Schemes are not widely available and are not yet regulated by the FSA.
• Many of the best-known companies offering the different types of equity release schemes sign up to the SHIP  (Safe Home Income Plans) Code of Practice. This is a voluntary code of practice.
• This is a complex area and Professional advice is essential.