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Home Reversion Can Still Play a Part in the Whole Equity Release Scheme of Things

Saturday, April 7th, 2012

Home reversion schemes have literally had their nose pushed out of the equity release market upon entering the year 2012. There has been a significant rise in the popularity of lifetime mortgage plans; including drawdown equity release schemes, enhanced equity release schemes & interest only lifetime mortgages.

Figures produced by SHIP (Safe Home Income Plans) show that home reversion plans now only account for 2% of the whole equity release sales. Drawdown lifetime mortgages popularity has captured 62% of applications & conventional lump sum equity release sales amount to 36%.

It is clearly evident to see the sincere lack of home reversion applications. Here we look at the mis-conceptions surrounding home reversion schemes & why they must still be considered in the overall equity release scheme of things!

 

First let’s look at the home reversion plan basics..

The home reversion scheme requires the property owner to sell part or all of their property in return for a tax free lump sum. The lump sum offered by the reversion company will always be at a discount to the percentage sold. The reason for this is that the applicants can remain living in the property for the rest of their lives, rent free. Significantly, it could be some time before the home reversion lender receives their money.

No interest element is attached to home reversion schemes. Unlike lifetime mortgages, home reversion offers guarantees as to the percentage of the property that will pass to the beneficiaries at the end of the day. This stems from the initial decision made as to how much of the property’s title is transferred to the lender. For example, if 55% of the property is sold in exchange for a lump sum, then this will still guarantee 45% of the eventual sale proceeds will pass to the beneficiaries. This is a major advantage of home reversion schemes over lifetime mortgages & provides peace of mind.

 

So why the lethargy surrounding home reversion plans?

Perhaps one of the major stigmas attached is the fact that you will not own your property 100%. The reversion provider will co-own the property with you, thus having a greater say in its maintenance & future planning of the home. They will have the right to inspect the house at regular intervals to ensure it is maintained adequately, thus protecting their security. Any major home improvements will also need their permissions in case you were thinking of extensions or knocking down walls!

Another consideration would be upon moving home or wanting to sell. At this point an equity release calculation would need to be undertaken to establish how much equity you own based on current value upon transfer across to the new abode. Therefore independent valuations would need to be conducted to ascertain current market value. This could prove difficult in today’s market with a lack of sales & depressed housing market.

The one danger of home reversion plans is upon early death. Home reversion would prove expensive should you die or move into care in the earlier years of inception. Effectively, you have given up a large portion of your home based on average life expectancy. If you fail to reach this date, then home reversion could prove a poor decision. On the flip side, if longevity is in your family genes, then home reversion could be a great decision. Oh the virtues of a crystal ball!

Nevertheless, this aspect of the housing doldrums could actually have a positive accent as to why a home reversion plan could be more advantageous than a lifetime mortgage scheme.  By taking out a home reversion scheme in anticipation that property values will remain static could prove beneficial. Afterall you are guaranteed that at the end of the day some equity will remain as you have a percentage of the property value guaranteed.

Compare this to lifetime mortgage schemes where the roll-up of interest compounds yearly & will continue escalating until the plan expires. In this situation, should property values remain static, then with a continuously rising mortgage balance & static house prices, will lead to the eventual erosion of the equity. This could be so much so, that NO equity remains at the end of the day with a lifetime mortgage.

 

So why should you consider a home reversion scheme?

As you can see the home reversion plan offers a sense of assurance which is not possible with many other equity release schemes. With the progress in medical science, the human body is capable of living much longer. Age therefore plays a major role in this equity release plan with a minimum starting age of 65. Indeed, the older one gets before taking out a home reversion scheme the better the terms that will be offered by the lender. The resultant effect of this is the older the homeowner, the more is paid as a capital lump sum.

 

Some of the negative issues surrounding home reversion schemes have been addressed by the providers – Bridgewater, New Life Mortgages & Hodge Lifetime. Particularly Bridgewater have considered many of these issues & allayed such fears by building in a series of plan options. Similar to drawdown lifetime mortgages, Bridgewater offer a flexible equity release plan which allows you to sell less than 100% of the home & still provide the guarantee of future withdrawals in the future.

 

Another home reversion plan flexible feature could be a ‘secured escalating release’ option which allows you to release a lump sum of cash now, together with a future income over a number of years. This is achieved with the use of annuities.

Finally, some home reversion plans could also offer protection on early death, so always make the necessary enquiries before entering into a long term financial commitment.

 

Home reversion redemption

The home reversion company will eventually receive their money by selling the property when the occupier has died or moved into long term care. Additionally, this type of home equity scheme offers the property owner the ability to change properties. This is a requirement of SHIP (Safe Home Income Plan).

Always take the assistance of an independent financial advisor so that they can help estimate the value of your property and help you decide on the scheme best suited to your requirements. Equity release is very beneficial for retired individuals who do not have a steady flow of income or require a capital lump sum for lifestyle improvements. One of the products that could succeed with these bequests could be the home reversion scheme as it offers stability, guarantees for your children and allows you to enjoy a worry free, rent free retirement.

 

For home reversion advice contact the specialists at Equity Release Supermarket on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

What Can Be Learned by Using an Equity Release Calculator or Lifetime Mortgage Calculator?

Sunday, January 8th, 2012

Those researching equity release will find the use of an equity release calculator and lifetime mortgage calculator as really helpful basic starting points in conducting their research. These online tools are excellent for understanding what the potential maximum amounts of equity release that can be withdrawn. They also prove that research is paramount in establishing whether lifetime mortgages, home reversion or equity release schemes are the most suitable option.

 

The best equity release websites will provide multiple calculator options that answer the most common question – What is the maximum release available?
Always try & find an equity release website that offers a calculator for each type of equity release mortgage option. This is vitally important, as the equity release calculators on most sites only provide you with ONE answer. These sites are not painting the whole picture & may lead you to believe that equity release plans may not be able to help your situation. They maybe just trying to capture your contact information & are basically not providing the answers you require.

 

What is the Use of Knowing the Maximum Lump Sum?

The more comprehensive equity release calculators will advise the maximum lump sum. This is an important figure which can be used to understand what the total amount of equity release loan is available, based on the specific information included in the lifetime mortgage calculator. The reason of this importance is down to the fact that you may have a predetermined lump sum in mind & unless an equity release scheme can fulfil this shortfall, then your dreams can’t become reality.

 

Both equity release calculators & lifetime mortgage calculators require a certain amount of information regarding your current situation. More in depth calculators will go that one step further & can even tailor your answer, dependent upon health. The main two elements required for input are the value of the property & the age of the youngest applicant. This equity release calculator can then provide the total equity release maximum lump sum for both a standard & impaired life arrangement.

 

Different Types of Equity Release Calculators

These will be a lifetime mortgage calculator, home reversion calculator & an interest only mortgage calculator. Of these, the lifetime mortgage calculator should provide two answers – good health & poor health (enhanced).

For an enhanced maximum calculation i.e. where there has been a history of ill-health, then further information will be required to determine whether eligibility will exist. The enhanced equity release calculation will offer a higher lump sum than standard. The assumption by the lender is that due to the ill-health, the term of the equity release mortgage will be shortened. Therefore, as the interest roll-up period will less, then the lender can release more & thereby protecting itself from the no-negative equity guarantee.

 

When looking at this equity release maximum lump sum provided by equity release calculators such as the one above, it is important to note that there are a variety of options available to the customer, from that point. Within that maximum, a customer could find an interest only mortgage or one of the many other equity release products that are currently available on the market.

 

Equity release schemes often provide these calculators because they provide such important initial research for customers. People over 55 years of age who have invested in property may find that interest only mortgages and other equity release products are excellent for the release of equity from their homes without having to sell. This keeps the property in the family or inheritance chain, but also allows the ability to recover some of the money invested or grown in value over the years. There are a range of equity release products available, and it is best to discuss needs with an independent financial advisor. However, before doing so, it is useful to do some background research on what options are available and an equity release calculator, or a lifetime mortgage calculator, is a great place to start.

 

To access the Equity Release Supermarket calculator click here or call freephone 0800 678 5159.

 

 
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