Home reversion plans versus lifetime mortgages | moneyfacts.co.uk

Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 27/05/2020

At a glance

  • Home reversion plans and lifetime mortgages both allow you to release the cash locked in your home
  • Home reversion plans make you sell a share of your house, whereas a lifetime mortgage is a loan secured against your property
  • Both types of equity release allow you to stay in your own home until you die or move into permanent care

Those who are over the age of 55 and looking to release equity from their property usually have a choice of downsizing or taking a form of equity release. Equity release could be an option if you would prefer to stay in your own home and not downsize. Read our guide to find more about how equity release works or look at our equity release FAQs.

What is the difference between a home reversion plan and a lifetime mortgage?

Home reversion plans and lifetime mortgages both allow you to release the equity or cash tied up in your home. They both allow you to stay in your own home and use the cash to fund your retirement and they also allow you to receive cash without having to make regular repayments or risk losing your home. Any money borrowed will need to be repaid when you enter long-term care or when you pass away. However, a lifetime mortgage and a home reversion plan are very different types of products; a lifetime mortgage is a loan secured against your property, while a home reversion plan sells a share of your property at less than its market value. We’ve set out the main differences between lifetime mortgages and home reversion plans below.

 

Lifetime Mortgage

Home Reversion Plan

How does it release cash from your home?

You borrow this from the equity release lender. That debt and interest is held against your own home that acts as security.

You sell a percentage of your home to the equity release provider for less than the market value.

How does the provider earn money from equity release?

The lender charges interest on the amount you have borrowed, this is then compounded as interest is charged onto interest, meaning your debt increases over time.

The equity release provider buys the share of your home for less than market value. They can then sell this at the full rate after you die or go into long-term care.

What are the risks?

Negative equity may occur unless you have protection against this in your lifetime mortgage. Lifetime mortgages from providers that are members of the Equity Release Council come with a no negative equity guarantee.

Means tested state benefits may be impacted.

The value of your estate to pass on to beneficiaries will be reduced (if you do not payback the mortgage).

You will not benefit from any future increases in the value of the share you have sold.

Means tested state benefits may be impacted.

The value of your estate to pass on to beneficiaries will be reduced.

Can I change my mind?

You can choose to payback your lifetime mortgage, but you may incur early repayment charges.

You may be able to buy back the share of your property but this will be at the full market value at the time of sale.

What is the minimum age?

Starts from age 55

Usually this starts at 65 , but it can vary and some providers may accept applications below this age.

How much money could you get?

A maximum of 60%  of the value of your home is available although the top end of this limit is restricted to a handful of providers. How much you can borrow will depend on your age and the lender’s rules. The older you are the more you can borrow.

Providers generally offer between 20% and 60% of the value of  the share of your property that you wish to sell.

 

 

How are lifetime mortgages and home reversion plans regulated?

Those organisations that advise on or sell equity release products must be authorised by the Financial Conduct Authority (FCA). Firms that are regulated by the FCA must adhere to specific standards, in areas such as product design, advertising, sales and complaints processes.

Can I get more money from my house with a lifetime mortgage or a home reversion plan?

The amount of money you can expect to receive from a lifetime mortgage and home reversion plan will depend on your property, health and age. Some home reversion plans will buy 100% of your home but for between 20% and 60% of the price. A lifetime mortgage may give you up to 60% of the property’s value, but this will accrue interest if not paid back and could eat into your remaining equity.

Moneyfacts tip

Moneyfacts tip Michelle Monck

if you choose a lifetime mortgage that offers drawdown, you can get an agreement in principle for the maximum amount you can borrow and then drawdown the amount you need in increments rather than all on one go. This means you only accrue compound interest on the amounts drawn down and not the full amount agreed in principle. 

Which is safer a home reversion plan or a lifetime mortgage?

Both types of equity release are regulated by the FCA and require you to receive advice before you take out a product. Our guide explains what to expect when you receive equity release advice. Both products come with risks, such as the potential for negative equity (unless your lifetime mortgage is from a provider that is a member of the Equity Release Council in which case it will have a no negative equity guarantee) with a lifetime mortgage and not being able to benefit from future house price increases to the share you have sold under a home reversion plan. Both products will impact the value of the estate you leave behind and any decision to take equity release should be made alongside your family and/or estate’s beneficiaries.

Who offers lifetime mortgages?

  • Aviva
  • Canada Life
  • Hodge
  • Just
  • Legal & General
  • LV=
  • More 2 Life Ltd
  • OneFamily
  • Pure Retirement

Who offers home reversion plans?

According to data from Moneyfacts only Bridgewater Equity Release Ltd currently offer home reversion plans.

Which is the best equity release?

Moneyfacts assesses the best equity release products available each year as part of its Star Ratings programme. This gives consumers an indication of which equity release products have the best range of features and their flexibility for borrowers. Find out which equity release products got a top rating.

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HUB Financial Solutions Equity Release Advice

 

How much do you know about equity release?

Speak to the team today to find out if equity release could be right for you.

 

Call 0808 239 8485 or find out more.

Lines are open Monday to Friday 9am to 5pm excluding bank holidays

Calls may be monitored for regulatory purposes.

Find out how much money you could release from your home

Go to the equity release calculator provided by HUB Financial Solutions and see how much money you could release from your home.

 

Note

A lifetime mortgage is a loan secured against your home.

Moneyfacts.co.uk will receive a small payment if you use the services of the providers above after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions.

Disclaimer

This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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At a glance

  • Home reversion plans and lifetime mortgages both allow you to release the cash locked in your home
  • Home reversion plans make you sell a share of your house, whereas a lifetime mortgage is a loan secured against your property
  • Both types of equity release allow you to stay in your own home until you die or move into permanent care

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