Reversion schemes

Reversion schemes allow homeowners to sell all or part of their property to a reversion company. The provider either pays a lump sum when the transaction is completed, or pays a regular annuity income for the life of the homeowner. The value received depends on the age of the homeowner, but it will always be much less than the value of the property, because no rent is payable by the homeowner and the provider has to wait until the planholder’s death before recovering the value of its investment.

The longer the homeowner lives, the better the deal becomes from their point of view. People in poor health can secure more favourable terms from specialist companies. When eventually the property is sold, the reversion company keeps the sale value of its share, while the value of the retained share goes to the estate of the homeowner.

• Advantages

  The main advantage of these schemes is certainty. The homeowner has a clear idea of the final cost when entering into the plan. It is based on a percentage of the value of the property. The balance of the value of the property will be retained for the benefit of the homeowner’s estate.
  
  

• Disadvantages

  The disadvantages are that the homeowner will lose out if either he or she dies prematurely or house prices rise significantly.

If the plan is taken out by a single person, their home will be sold when they die and the planholder’s proportion of the value of the property will pass into their estate.

When the plan is taken out by a couple, it will be arranged on a joint life basis and the property will not be sold until after the second death.

All reversion schemes are portable, but there can be difficulties if the homeowner decides to move to a less valuable property, and in any event the new property will need to meet the reversion company’s criteria.