The mechanism
Under a home reversion plan the client sells all or part of the property to a reversion provider and receives a cash sum, together with a lifetime lease allowing them to remain in the property rent-free or for a nominal rent. Nothing is borrowed, so no interest accrues at any point.
How the price is set
The client receives substantially less than the market value of the share sold, because the provider waits until the property is sold after death or a permanent move into care before realising its share. The discount reflects age, health and the expected period of occupation, so younger clients receive proportionally less. Enhanced terms may apply where health is disclosed.
Ownership and the estate
The share sold is no longer the client's and does not form part of their estate. Growth on that share accrues to the provider. A client who sells 40% keeps 60% of eventual sale value with certainty — which is precisely the attraction for some clients and the objection for others.
Reversion versus a lifetime mortgage
- No interest, so cost is fixed at outset as the discount on the share sold
- Certainty over the retained percentage, rather than a growing debt
- Loss of ownership of the share sold, including its future growth
- A narrower provider market, so availability and criteria are tighter
- Same FCA regulation, adviser permissions and qualification requirements
- Compare against a lifetime mortgage with inheritance protection before advising
The lifetime lease
The lease sets out the client's right of occupation, any nominal rent, maintenance and insurance obligations, and what happens if the client wishes to move, take in a lodger or let the property. These conditions are material to suitability and must be explained in writing.
Adviser checkpoints
- Confirm the provider's minimum age and minimum property value for reversion
- Establish the exact percentage sold and the percentage retained
- Record in writing that the share sold no longer belongs to the client or estate
- Check the lease terms, obligations and occupancy conditions
- Confirm the position and any portability on a future move
- Confirm whether Equity Release Council standards apply to the plan
- Ensure independent legal advice covers the sale of the share