Equity Release Mortgages

Home Reversion Equity Release Mortgages

Using a home reversion scheme, the property owner sells their home (or a share of the home) to a financial institution. The firm will pay a lump sum or a monthly income (or a combination of the two). In effect, the property owner becomes a tenant of the financial institution at zero rent or at a very low rent until they die.

When the property is eventually sold, the financial institution takes its share of the proceeds. For example, if it had bought a 40 percent share in the property, it would receive 40 percent of the sale receipts. Because the original property owner will continue to live in the property, possibly for many years, the financial institution will not pay the current market value for the share of the house that it is buying. If you were to sell the whole of your property to a financial institution under a home reversion scheme, you could expect to receive between 30 and 60 percent of the market value. The actual percentage will depend on how long the financial institution's actuaries expect you to live; it will depend on your age, sex, smoking habits and state of health.

Advantages of Home Reversion Mortgages
The original property owner will know the percentage of the property (but not the value) that they will be able to bequeath to their heirs.
If the whole property was not sold by the original property owner, monetary value will continue to accrue to them from any increases in the price of the property.
If the owner has equity remaining in the property, further shares can be sold at a later date.
The original property owner will not have to make any repayments during their lifetime.

Disadvantages of Home Reversion Mortgages
A financial institution will insist on purchasing a property at considerably below its market value.
Financial institutions are sometimes fussy about the properties they will purchase because they need to be good long-term investments in order to be viable.
If a property owner dies soon after selling all or part of their home, they could have lost a large sum of money with little benefit to themselves; some financial institutions will offer rebates to families if the property owner dies within the first few years of a home reversion scheme.

Summary
In a home reversion scheme, the property owner sells a share or all of their home to a financial institution;
with a home reversion scheme, a property owner will not have to make any repayments during their lifetime;
financial institutions will only purchase properties that they consider to be sound, long-term investments for a home reversion scheme.