Glossary · UK
What is Home Reversion Plan?
A form of equity release in which a homeowner sells all or part of their property to a provider at a discount to market value, in exchange for a lump sum and the right to live there rent-free for life.
Full Definition
A home reversion plan is a less common alternative to a lifetime mortgage for releasing equity from a home, normally available only from an older minimum age (often 60 or 65) than lifetime mortgages. Rather than taking out a loan secured against the property, the homeowner sells an agreed percentage -- anywhere from a small share up to the whole property -- to a reversion provider, in return for a cash lump sum (or, less commonly, an income) and a legally binding right, usually recorded through a lease, to continue living in the property rent-free (or for a nominal rent) for the rest of their life. Because the provider is buying a share of the property outright rather than lending against it, the amount paid to the homeowner is set at a significant discount to the true market value of the share sold, reflecting the fact that the provider cannot access or sell its share, and receives no rental income, until the homeowner dies or moves into permanent care -- the older the homeowner and the more restrictive their health, generally the higher the percentage of true value they are offered. Because a home reversion plan involves an outright sale, the homeowner permanently gives up the reversion provider's share of any future rise in the property's value on that portion, which is one of the main trade-offs weighed against the potentially larger discount compared with the compounding interest of a lifetime mortgage.