TOPIC 4 Flashcards
State two main circumstances in which a home reversion provider will require vacant possession of a property?
On death or entry into long-term care of the placeholder (surviving placeholder for joint arrangements)
List the main initial costs involved in a home reversion plan
Valuation fee, legal costs and advice costs.
What three rental options are potentially available under a home reversion plan?
No rent, fixed rent, escalating rent.
Home reversion schemes work on a sale and leaseback 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, enabling them to remain in the property.
Why do home reversion companies not accept all types of property?
The must consider whether there is a reasonable chance of selling the property for a realistic price on the placeholder’s death. Where the property has limited market (shelter 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 the plan. The house is now worth £200,— 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 the £50,000 difference, the provider will be repaid £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 will not have the right to live in the property after Ann’s death and will have been required to sign an occupier’s waiver to that effect. It might be possible to change the plan to a joint life version now, in order to give Bill rights later on.
What would the provider be concerned about if a home reversion placeholder wanted to make alternations to the property?
The provider would be concerned about: whether the alternation will add value; whether the relevant consents (planning/building) are in place; the quality of construction; and the status of the builder.
Why is the amount released under a home reversion plan less than the market value of the property?
It reflects the fact that the provider is granting a 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 and payments or interest on the capital invested until the property is sold, which could be many years in the future. It is 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 placeholder runs the risk of losing their income if they do not keep up their monthly rent payments.
List five circumstances, other than death or entry into long-term-care, when the lease under home reversion may come to an end:
- The placeholder is no longer using the property as their main residence or has abandoned the property.
- The placeholder has failed to meet their obligations regarding service charges, utilities and other outgoings.
- The placeholder has failed to keep their rent payments up to date (if applicable).
- The placeholder has accrued unreasonable debts, say £5,000, to the reversion provider.
- The placeholder has wilfully allowed the property to fall into a state of degradation.
