What is home reversion and should I consider it?

Home reversion schemes allow homeowners to release equity tied up in their properties. Depending on the home equity release needs of each individual client, such schemes are tailored to free up a negotiated percentage of your home’s market value. Simply put, home reversion entails selling your home – or a portion of it – to an investment company. Even though you no longer own your entire house, you can continue to reside in it as a tenant for as long as you want to.

Reversion plans are implemented on the premise that the lender grants the lump sum loan without charging tax and retrieves it – as well as the cumulative interest – when the homeowner passes away or the property is sold.

A property solution designed for older homeowners, home reversion schemes allow consumers to release equity to cover their daily living costs, for example. Such schemes only apply to homeowners who are older than 65, or in the case of joint applications, older than 138 collectively. Investment companies consider your life expectancy and the value of your property – as well as an estimation of its future value – when deciding the terms of the loan they are willing to grant you.

A risky trend: Some facts about home reversion.

An increasing number of cash-poor, asset-rich pensioners are opting for equity release schemes despite the Financial Service Authority’s warning that these are “higher risk” and largely unregulated products.

Recent statistics reveal that the value of the UK’s home reversion market has increased from £13.4m in the first three months of 2005, to £18.9m during the same period the following year – this represents a drastic 41% increase. Life mortgages, on the other hand, only increased by 11% during the same period. Having considered proof of the popularity of home reversion schemes; let us now take a closer look at what is at stake.

Bear in mind that a pensioner’s home is often their most – if not only – significant asset. Older unemployed homeowners are easily tempted by the sparkling promises of too many home equity release schemes that saturate the market. The need to release equity to cover their daily living costs, or for whatever else is required at this time of life. It is, however, imperative that you do your homework to avoid a wrong decision that could have dire implications involving tax, benefits, inheritance, and most importantly, your long-term financial planning. Read on to learn more about the real risks that go hand in hand with many home reversion plans.

Firstly, the property market is unpredictable. If you choose to release 30% of your home equity today, your investment company will expect 30% of the total profit when you sell your house in ten years’ time. The chances are good that the 30% will be worth much more then than it is now. Furthermore, if you decide to move house, for example, you will only be entitled to proceeds in terms of the original percentage you had left of your home after the reversion agreement.

Secondly, unscrupulous investment companies often exploit ignorant homeowners. By not disclosing or explaining terms properly at the beginning of a transaction, these companies pave the way for future disappointment and frustration. Cumulative interest is a case in point – many homeowners are unaware of the extent to which interest actually builds up, and how it will eventually eat into their future selling profits. Just because you do not have to pay interest now, or on a monthly basis, does not change the fact that it will affect you one day.

This brings us to a third risk, which is not unrelated to unscrupulousness. It is a fact that most home reversion schemes are based on property valuations of surveyors who work together with prospective lenders. Some dishonest valuator-lender teams may exploit homeowners by making them believe their homes are worth less than they actually are. This can allow companies to purchase a property – or a share thereof – too cheaply.

Lastly, there are some family realities to consider. If you opt for a home reversion scheme, your family will not be able to inherit your house when you pass away. A reversion loan is granted on the condition that it will be repaid using the proceeds of the sale of your home. Furthermore, if you live with a younger person, you need to remember that they will have to find alternative accommodation after your death.

Some other risky equity release schemes include Second and Lifetime mortgages. Under a second mortgage agreement, the homeowner secures a loan against the value of his or her property. These loans, tailored in the form of a lump sum or regular monthly payments, are repayable when the homeowner passes away or the property is sold. As opposed to home reversion schemes, ownership remains with the homeowner in the case of second mortgages.

A Lifetime mortgage, or a “roll-up loan”, grants homeowners cash – in the form of a lump sum or monthly instalments – secured against the value of his or her property. Interest, not charged on a regular basis, accumulates and gradually inflates the original loan amount. All monies are repayable when your home is eventually sold. However, many homeowners have learnt the hard way that cumulative interest has a tendency to grow at an alarming pace and take its toll on your profits.

Don’t risk your most important asset: Consider Sell and Rent Back.

Thanks to MPG Investments, you don’t have to take any chances with your property or your long-term financial planning. If you want to release your home equity fast, you need to consider our safe, easy and more financially viable option. Sell and Rent Back is an innovative offer that puts an end to stress, delay, and the above-mentioned risks.

With us, you can sell your home in 7 days and use the instant cash injection to address your financial situation. Furthermore, you don’t even have to move! You can sell your house and then rent it back from us at an affordable rate for as long as you have to.

This way, you don’t have to concern yourself with fluctuating property prices, exorbitant interest rates or trickery from unscrupulous investment companies. With you in the driving seat, Sell and Rent Back affords you the opportunity to stabilise your financial situation right now – as opposed to entering into a risky agreement that could lead to disappointment and frustration later.

Why put off for tomorrow what you can do today? Contact one of our experienced consultants on 0800 634 9231 and enjoy the peace of mind that comes with a quick, guaranteed sale.