Home & Capital introduced the first cash lump sum home reversion plan to the market in 1978.

Under a home reversion plan, the homeowner sells all or part of their home to the provider, in exchange for a cash lump sum, a series of regular payments or a mixture of both whilst living rent free in their home for the rest of their lives, supported by a lifetime lease. The planholder remains responsible for maintaining and insuring their property. The amount paid is discounted from the current open market value of the property. The level of discount depends on two main considerations; the age and life expectancy of the      applicant(s).

Any financial return is derived on the sale of the property when it falls vacant at the end of the lease. This is usually determined by either the death of the planholder(s) or if they move into permanent long term care.

Equity release plans are flexible in design to meet the demands of the current consumer. If homeowners sell less than 100% of the property value at outset, they can normally sell an additional share of the property to access further capital at a later date.

As well as security of tenure for life, most products on the market today generally give homeowners the right to move. The best product features and safeguards are offered by members of Safe Home Income Plans (SHIP).

The alternative product to a home reversion plan is a lifetime mortgage. With a lifetime mortgage, the homeowner takes out a loan secured on the property. Interest on the amount borrowed is rolled up on a compound basis and added to the outstanding loan, to be repaid when the property is sold, either upon death of the last surviving planholder, or a move into long term care.

The maximum amount available depends on the age and life expectancy of the homeowner(s) and the value of their home. The maximum loan available is less than with a standard residential mortgage because interest is typically rolled up. Assuming an interest rate of 7% p.a, this would mean that borrowing doubles every ten years. Lifetime mortgage providers who are members of SHIP, protect the borrower’s estate from negative equity.

The interest rate on a lifetime mortgage is normally higher than on a more traditional residential mortgage as the rate is fixed for the entire duration of the loan rather than short term interest rates which vary considerably during a twenty year period.

The equity release sector is now comprehensively regulated by the FSA. Regulation requires that financial advisers and product providers are able to demonstrate that consumers have been treated fairly throughout the sales process.

Safe Home Income Plans (SHIP) provides additional reassurance to consumers concerning product standards. A member of SHIP will not accept an application for their product unless the consumer has received advice from a financial adviser who has attained the necessary specialist qualifications. An equity release financial adviser must be employed by a firm which has the required permissions from the FSA to advice and/or arrange equity release plans.

Prior to entering into an equity release plan, it is an additional requirement of SHIP that the consumer receives independent legal advice from a solicitor of their own choosing.

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