Home Reversion Plan explained

A Home Reversion Plan is a fundamentally different type of equity release to a lifetime mortgage. Rather than borrowing against your home, you actually sell all or part of it — typically between 25% and 100% — to a reversion company, in exchange for a cash lump sum, a regular income, or a combination of both. In return, you're granted a lifelong legal right to continue living in the property rent-free (or for a small "peppercorn" rent), for as long as you wish.

Why the amount offered is usually well below market value. Because the reversion company won't get its share of the property's value until you die or move into long-term care — which could be decades away — and because you continue to live there rent-free in the meantime, providers typically only offer somewhere between 30% and 60% of the true market value of the share you sell. The exact percentage depends heavily on your age and health: the older you are when you take out the plan, the higher the proportion of value you're typically offered, since the provider's expected wait is shorter.

The key difference from a lifetime mortgage. With a lifetime mortgage, you retain 100% ownership of your home and a debt builds up over time. With home reversion, you give up legal ownership of the share you sell immediately, in exchange for a payment now — there's no interest, no rolling debt, and no chance of owing more than the property is worth, because you're not borrowing at all. The trade-off is that you permanently lose ownership of that share of your home, regardless of how its value changes afterwards, even if it rises substantially.

Why it's much less common today. Home reversion plans now make up only a small fraction of the UK equity release market, with the vast majority of providers and customers favouring lifetime mortgages instead — partly because lifetime mortgages let you retain full ownership, and partly because reversion plans tend to offer less favourable value for the share given up. It's still worth understanding, however, as it may suit specific circumstances, such as wanting full certainty with no compounding debt.

Questions worth asking before you commit:

• What percentage of your home's value are you actually being offered for the share you'd sell?
• Is your right to live there for life clearly written into the contract, and is it protected if the provider goes out of business?
• Are you responsible for maintaining and insuring the whole property, even after selling a share of it?
• Can you later sell further shares of your home, or buy back the share you sold?
• How will this affect what you can leave to your family, given you no longer own that share at all?

Because you're permanently giving up ownership of part of your home, this is one of the most significant decisions covered in this guide. It should only be taken out after independent financial advice from a qualified, FCA-regulated equity release adviser, who is legally required to confirm it's suitable for your circumstances.