Home Reversion Plans Flashcards
Home reversion schemes work on a sale and lease back basis what does this mean?
This means the homeowner sells the property (or part of it) to the reversion company. The former homeowner is granted a lifetime lease enable in them to remain in the property.
Why do Home reversion companies not accept all type of property?
They must consider whether there is a reasonable chance of selling the property for a realistic price on the planholders death in the event they enter into long-term care.
Where the property has a limited market (Sheltered housing etc) or unusual construction. It may be difficult to sell.
Victor and Paula took out a Home reversion scheme five years ago putting 40% of their house, then worth 140,000 into a plan. The house is now worth 200,000 and they want to move to a smaller bungalow priced at 150,000 how would this work?
The provider will require repayment of 40% of the difference in value between the two properties.
This means that of 50,000 difference the provider will be repay 20,000 and Victor and Paula will keep the remaining 30,000.
The provider will retain an interest in 40% of the new bungalow.
Ann took out a home reversion scheme in 2015 two years after she was widowed in 2017 she married Bill who moved into the property but did not become party to the plan what would happen to Bill in the event of Ann‘s death?
Bill would not have the right to live in the property after Anne‘s death and will have been required to sign an occupiers waiver to that effect. It might be possible to change the plan to a joint life version now in order to give a bill rights later on.
What would the providers be concerned about if a home reversion plan holder wanted to make alterations to the property?
The provider would be concerned about whether the alteration will add value; whether the relevant consents are in place and the quality of the construction and status of the builder.
Ultimately; the provider will want to be sure that any proposed alteration will not detract from the value of the property or hinder their ability to sell it.
Why is the amount released under a home reversion plan less than the market value of the property?
It reflects the fact that provider is granting and valuable lease and that they may not have taken full ownership where no rent is payable. Another reason for the discounted lump sum is that the provider will not receive any payments or interest on the capsule invested until the property is sold Which could be many years in the future and for this reason that a higher amount will be advanced where rent is paid.
Why do Home reversion plans that require rental payments not comply with the ERC‘s product standards?
It is because the plan holder runs the risk of losing their home if they do not keep up their monthly rent payments.
List five circumstances other than death or entry into a long-term care when the lease under the home reversion may come to an end.
The plan holder is no longer using the property as their main residence or abandoned the property
The plan holder has failed to meet their obligations regarding service charges, utilities and other outgoings
The plan holder has failed to keep up their rent payments if applicable
The plan holder has accrued unreasonable debts to their reversion provider
The plan holder has wilfully allowed the property to fall into a state of degradation.
List the main initial costs involved in a home reversion plan?
Application fee
Valuation fee
Legal costs
And financial advice costs
what three rental options are potentially available under a home reversion plan?
No rent
Fixed rent
Escalating rent
State the two main circumstances in which a home reversion provider will require possession of a property?
On death or entry into a long-term care of the plan holder (surviving plan holder for joint arrangements)
