Advantages and Disadvantages of
Reversion Schemes

Advantages of Reversion Schemes

• The cost of the loan is known at the outset (the percentage sold) compared to lifetime mortgage type schemes where it depends on how long you live.
  
• You know in advance how much of the home you will leave to your family.
  
• Larger sums can be released than under a lifetime mortgage – important if you still have a large mortgage which you want to pay off.
  
• As the percentage sold is set at outset, you are less affected by falling house prices than under Lifetime Mortgages.
  
• Unless you sell all of the home, you continue to benefit from any growth in value of the share you retain.
  
• Unless the maximum is taken at the outset, you should still be able to sell further percentages whenever required. This means that you should be able to raise further funds later to either improve your finances further, pay for care or even mitigate Inheritance Tax. Such further releases are unlikely under Lifetime Mortgages unless your home increases in value by more than the loan increases with the compounding of interest.
  
• Relatively simple.

Disadvantages of Reversion Schemes

• You receive only a percentage of the market value for the share sold. This is especially marked the younger you are, often making it uneconomical for low value properties.

For example, let's say your house is currently worth £260,000. If you agreed to sell 50% (equivalent to £130,000 based on current value) and because of your age you receive a rate of 40 per cent, you will only receive £52,000. If the house is then sold after 15 years, and is then worth £400,000. The lender collects 50 per cent of this amount, which is £200,000.

• If you sell all of your equity, you (or your estate) will not benefit from any increase in your property’s value in the future.
  
• If you or the last person, dies relatively early, the cost of the scheme in terms of equity given up may prove more costly than under a lifetime mortgage.
  
• Additional releases (assuming you retained a percentage of your home) involve a new contract and unlike Lifetime Mortgages drawdown schemes, can take up to a further 3 months to obtain.
  
• You (or your heirs) may miss out on any increase in the value of the portion you have sold.
  
• You lose ownership but are still responsible for the upkeep of the property.
  
• You loose the rights over the property and become in effect a tenant although no rent will be due.
  
• It is more difficult and may even be impossible to buy back any share sold or for your family to be able to buy it.
  
• Reversion schemes are available from several different providers but details and terms vary. Apart from the amounts each company deducts converting your share into benefit, some schemes allow you to benefit from increase in property values while others do not. Some schemes will allow you to sell 100% of your properties, while others limit it to only 90%.
  
• Reversion schemes involve selling all or part of your home, and may work out more expensive in the long term than downsizing to a smaller property, and may affect your entitlement to State benefits and grants.

This is a home reversion plan. To understand the features and risks ask for a personalised illustration

Please note: All equity release products involve borrowing against, or selling all or part of your home, and may work out more expensive in the long term than downsizing to a smaller property, and may affect your entitlement to State benefits and grants. There may also be more suitable methods of raising the funds you need.