Equity Release - The Open Options Property Reversion Plan

Relatively few people choose the traditional Home Reversion Plan, despite the fact that it generally offers a larger maximum initial lump sum and has the inbuilt advantage of the option to guarantee that some of the home's value remains available to hand down to ones children. In practice, if the maximum sum is taken, using a home reversion plan has hitherto nearly always meant that the entire property has to be sold at the very beginning. This complete loss of ownership, combined with the offer of a heavily discounted price for the house in return for the guarantee that you can continue to live in it for as long as you wish, has proved a significant emotional barrier for many people. As a result most people choose the Lifetime Mortgage option in the hope that something will be left over for their children when the arrangement ends, although there is usually no guarantee of this.

Advantages

No interest is charged, This is a sale only transaction and no debt to the estate, either now or in the future, is involved. The reversion company makes all of its money when the property is sold.

No ongoing repayments to make, other than a possible peppercorn rent,

You know at outset what share of your home (if not its value) you will be leaving to your family.

You continue to share in any rise in the value of your property (unless you have sold its entire value) and you can take extra cash advances, depending on the amount you originally took.

If you are a smoker or have a serious illness, you may be able to get a bigger payment.

It is possible to cancel the arrangement at any time by payment of a nominal fee.

Selling part or all of your home through a Home Reversion Plan is a disposal for IHT purposes and may be offset against your taxable estate.

Disadvantages

The Home Reversion Plan company will buy at a discount to the current market value. The big discount at which they will want to buy makes these schemes more suitable for people in their 70s and upwards at which age better percentages are available.

If you die soon after taking out a Home Reversion Plan, you could effectively have sold off your house (or a share of it) on the cheap. Some home reversion plans give families a rebate if you die within the first few years of signing up. The brand new Open Options Reversion Plan largely avoids this problem by transferring the remaining equity bit by bit every month. This process normally takes many years to complete.

Home Reversion Plan companies can be choosy about the properties they take. For example, they don't like former Council properties, certain flats and registered smallholdings.

The loss of ownership, combined with the offer of a heavily discounted price for the house has proved a significant emotional barrier for many people.

However, a Home Reversion Plan should not be taken out solely for IHT reasons.

Entering into a Home Reversion Plan has long term implications for both you and your beneficiaries and you should not proceed lightly with any form of releasing cash from the equity in your home, or without taking independent financial and legal professional advice. You should also consider the other alternatives, such as downsizing, sale and rent and a Lifetime Mortgage. If you fail to do so and make a mistake it will be difficult and expensive, if not impossible, to rectify it and there are often better solutions available.

One of the two main ways of releasing some of the increased value of your home, in order to fund your retirement or improve your home is through a Home Reversion Plan, where part or all of the property is sold at the beginning of the arrangement. The Open Options Property Plan is an up-to-date Home Reversion Plan with a big difference.

The actual capital released will vary with age and gender and whether it is a single person or a couple involved; the younger you are, the less you will receive for the part you sell. This scheme is better suited to older ages and is not available before age 65. Typically, at that age you would receive around a third of of its value, rising to just over half in your late 80s. Income, if required, can be provided through the purchase of a lifetime annuity.

In order to overcome this bias, one home reversion plan lender cleverly introduced a joint ownership 'Open Options Property Plan', with no discounted price and very little reduction in the capital or income advanced. Instead, the percentage of the property value sold gradually increases each year by roughly 6.4% of the amount released and the ownership slowly transfers to the home reversion plan company. The option to retain a protected share is included as are enhanced terms for those with impaired health. This process, depending on the age and choices made at the start, can take up to 17 years and if you die during that time, any value not yet transferred remains within your estate. Regretably, this has been temporarily suspended.

The links below will take you to a series of calculators where you can see for yourself the typical amounts you could release and compare the options. This may help you to decide whether or not home a reversion plan is for you. It will also give you an indication of the initial effect on any IHT involved as well as the ultimate value of your property when final disposal is made. Please note, however, that not every Home Reversion Plan provides a lump sum. Several provide income only through an annuity, and you might get a better annuity elsewhere by using the lump sum method. This is something you should check carefully.