Home Reversion Schemes offer an alternative to other, more standard products, available in the equity release marketplace. With this product, a portion or all of the homeowner’s property is sold in exchange for a tax-free lump sum payment or regular payments. The homeowner is given residency in the home and is not asked to move. The homeowner(s) is able to stay in the home for the rest of their lifetime without ever having to pay any rent.
While in general, home reversion schemes have seemed to lose some of their popularity, they do still offer features unavailable with other products, particularly the ability to protect inheritance.
How Does a Home Reversion Scheme Work?
The homeowner essentially sells off part, or a percentage, of the property and becomes a co-owner. The homeowner must still maintain the property as they live out the rest of their life in the home but they are not obligated to pay any rent while living in the property. The homeowner receives a lump sum payment that they are able to spend according to their own discretion. There is no interest charged and the percentage of the property sold does not ever change. When the last remaining homeowner leaves the home and it is sold, the profits are split according to the percentages. The homeowner is then able to leave that percentage to whomever they’d like, thus protecting that inheritance.
There are different factors used in determining how much cash a homeowner may receive. These include the age of the youngest homeowner, the property valuation, percentage of the property being sold, and the health and overall lifestyle of the homeowner(s). In general, the homeowner is likely to receive a larger cash payment if they are older because their life expectancy is shorter.