Thursday, 29 January 2009

De-mystifying home reversion plans

At a time when the concept of equity release is slowly beginning to win over the sceptics, home reversion plans continue to be viewed with suspicion by many commentators. Why is this the case? Well, it may be because home ownership is such an emotive subject in the UK, especially among the older generation who view owning their house as the culmination of many years hard work. It may also be because there is a popular misconception about the nature of home ownership and the legal rights attached to a home reversion, that serve to feed people’s fears.

And yet in certain circumstances it is an option that should be given due consideration, especially if the clients have a positive view of their life expectancy, want to leave a guaranteed inheritance, need to release the maximum sum available and house price uncertainty continues to prevail.

Under a reversionary scheme, the clients sell all or part of their property at a discounted rate to a provider in exchange for a lump sum or regular income. The clients are given a lifetime right to remain living in the property and remain as beneficial owners with their rights of occupation protected by a lifetime lease. The legal title passes to the provider essentially for practical purposes as they have to be able to deal with the property at the point at which it has to be sold. Contrary to popular belief, holding the legal title does not confer any financial benefits upon the provider.

So it may well be a matter of showing clients the bigger picture; an experienced advisor should have conviction in their recommendation and be capable of reassuring the most cynical of clients, and if they work closely with a similarly experienced lawyer the clients should be given the correct advice to enable an informed decision to be made.