Home Reversion Plan advice

paul6316

I am looking for some advice on behalf of my partners aunt.

She is 70 years old and owns her house outright, which is worth approximately £200,000. The house needs some repairs carrying out on it and she does not have much disposable income. She has no children and is in remission from cancer.

My question is, can she borrow against the value of her house without the lender / company ending up owning all of her house. My limited understanding of a home reversion scheme is that a percentage of the house is sold to a company and that company only ever owns that percentage, no more. So for example they buy 10% of the house for £20,000. When the house is sold, for whatever reason, the company gets 10% of the sale price. They make their money by the house going up in value. Am I correct or is there more to it than that?

Any comments are welcome.

Thanks in advance

Thrugelmir

You wouldn't receive £20k for selling a 10% stake. The amount would be discounted to allow for interest so could be nearer £8k.

Wh05apk

Roughly speaking you are correct, but she may wish to consider "roll up" type of lifetime mortgages where she will still own the property but repay the mortgage on death/sale of the property, she will repay the amount borrowed + interest which would normally be rolled up.

paul6316

Wh05apk wrote: »

Roughly speaking you are correct, but she may wish to consider "roll up" type of lifetime mortgages where she will still own the property but repay the mortgage on death/sale of the property, she will repay the amount borrowed + interest which would normally be rolled up.

Thanks for the reply, my logic behind the reversion scheme was that she always knew the percentage not owned. With a lifetime mortgage the amount owed would continue to go up with interest possible to a point where she owned none of the house?

holly_hobby

Firstly house must be in a mortgageable condition (lender will have survey conducted) , and yes interest roll up on a lifetime mortgage (certainly if the market stagnates) will erode the free equity over time, ensure no negative equity gte arrangement sought (vital if property may be sold in her lifetime.

You are correct with your understanding of basics of home reversion (HR) schemes - there is no reduction/front loading for interest on amount advanced, as interest isnt applied on HR schemes (interest application relates to lifetime mge arrangements, either roll up or pay as you go, which some providers permit to ringfence debt with a view to protect free equity).

If this is an income generating exercise, ensure she is in receipt of (claimed) all qualifying pensions, benefits and/or available grants (if release is to fund home adaptations). Be aware the released capital held on deposit etc, will have to be declared (and may affect qualification) for application/continuing qualification for means tested benefits.

Refer equity release council for gen guidance - http://www.equityreleasecouncil.com/home/ and a qualified equity release adviser will be needed if she wants to proceed - https://www.unbiased.com and http://societyoflaterlifeadvisers.co.uk/, will have details of locally qualified ER advisers to assist.

Hope this helps

Holly

Wh05apk

paul6316 wrote: »

Thanks for the reply, my logic behind the reversion scheme was that she always knew the percentage not owned. With a lifetime mortgage the amount owed would continue to go up with interest possible to a point where she owned none of the house?

Technically yes, but lenders tend to be very cautious, and assuming property rise growth, it could be with a lifetime mortgage the % of the property value owed could remain pretty static, whereas with a reversion type, she may get for example 10% of the value, in return for selling 20%, she should really see an adviser and look at her options, lifetime mortgages are far more individual, and have longer lasting consequences than any other mortgage, so good advice is essential.

Let_Us_See

Under a Home Reversion scheme releasing £20,000 (10% of property value) will equate to "selling" approx 25% of the property.

Lifetime mortgage would be the better option for the repairs if no other option is available. Rather struggling with limited income the aunt may even want to consider a flexible lifetime draw down option to improve her standard of life.

paul6316

Thanks all for the advice it seems she needs to get professional advice first and then think carefully about her options.