The pros and cons of home reversion plans

Could you unlock more tax-free cash with home reversion?

Written in line with our editorial policy.

Home reversion may be the less common type of equity release (lifetime mortgages are more popular) but for some people, they can still be a useful way to unlock money from their home. 

Unlike a lifetime mortgage, you’re not borrowing against your property. Instead, you sell part or all of your home to a provider in return for a tax-free cash sum, while continuing to live there rent-free for the rest of your life.

While these plans can work well for some homeowners, they aren’t right for everyone. That’s why it’s important to look at the pros and cons of home reversion carefully before making a decision. Below, we explain how home reversion plans work, before diving into their key pros and cons and summarising them in a handy comparison table.

How a home reversion plan works

With a home reversion plan, you sell all or part of your property to a specialist provider. In return, you receive a cash lump sum which you can spend as you wish. The provider will typically pay you between 30% and 60% of your home’s current market value for the portion you sell to them. The older you are, the higher the percentage you’re likely to be offered.

When the property is eventually sold (either when you pass away or move into long-term care), the provider takes its share of the proceeds. If you only sold part of your property to them, any remaining value is returned to your estate and passed on to your beneficiaries.

You can read more about home reversion schemes here on our dedicated page, or read on to explore the benefits and drawbacks of this type of equity release plan.

Advantages of a home reversion plan

Everyone’s circumstances are different and we can’t say whether a home reversion plan is right for you. But here are some potential benefits to consider:  

You may be able to unlock a larger cash sum

Compared to a lifetime mortgage, home reversion schemes can sometimes allow you to release more money from your property. This is because you are selling a share of your home rather than borrowing against it, and if you’re older or in poor health, you could be offered a higher cash sum.

No interest accumulates on the money you receive

Unlike a lifetime mortgage, there’s no compound interest to worry about. Since you are not taking out a loan, the money you receive is yours outright, with nothing extra added to be repaid later.

You continue to live in your home rent-free

Even though you sell part or all of your property, you can remain in your home for life or until you move into long-term care. You’ll have the same rights as a tenant, but without paying rent, which gives you peace of mind and security.

You can still move home in the future

If you wish to move to another property after arranging your home reversion plan, you can still do this – providing your new property meets the home reversion company’s criteria. 

You can guarantee an inheritance for your loved ones

If you choose to sell only part of your property, you keep ownership of the remaining share. This guarantees that your family will inherit a portion of your home, regardless of how long you live or how much the property is worth when it’s sold.

Disadvantages of a home reversion plan

Home reversion (and equity release in any form) isn’t for everyone, and it’s important to understand the potential disadvantages and risks of this form of finance:

You sell at below market value

The provider will purchase its share of your home for less than its current market worth. This is one of the main disadvantages of home reversion and means you would almost certainly raise more money by selling in the traditional way.

You could miss out on future house price growth

Because you sell part or all of your home at below market value, you won’t fully benefit from the effect that future rise in property prices has on that portion of the property value. This pitfall of home reversion reduces how much equity or inheritance is left for your loved ones if the value of your home increases.

You will no longer fully own your property

Once you enter a home reversion plan, you give up some or all ownership rights. This can mean restrictions on what you can do with your home, depending on your provider’s terms and conditions, such as making significant changes or selling without agreement.

You must be at least 60 years old

Unlike lifetime mortgages, which are available from age 55, home reversion plans usually have a minimum age of 60. This five-year gap can be a drawback if you want to release money earlier in retirement.

Quick comparison table

To make the pros and cons of home reversion easier to digest at a glance, we’ve summarised the key points in this handy table. It gives you a clear overview of the main advantages and potential drawbacks, so you can quickly compare the benefits of potentially unlocking more cash, against the trade-offs like reduced ownership and limited future growth.

Considering the pros and cons of home reversion can help you decide if it’s the right option for your later-life finances. While the disadvantage of home reversion is that it reduces your ownership and could limit future growth, the tax-free cash and rent-free living can provide valuable flexibility and security.

Always weigh the pitfalls of home reversion carefully, compare it with lifetime mortgages, and get specialist advice to ensure you choose the plan that best fits your unique goals and circumstances.

Our expert team of selected advisers can help you understand all of the benefits and drawbacks and explore whether home reversion may be suitable for you. Call us on 0808 178 3055 or request a call back to arrange an appointment.