Lifetime mortgage vs home reversion
There are two main types of equity release plan available in the UK: lifetime mortgages and home reversion plans. They work in fundamentally different ways and suit different circumstances. This guide compares the two side by side to help you understand which might be appropriate for your situation.
In this guide
What is a lifetime mortgage?
A lifetime mortgage is a loan secured against your home that does not need to be repaid until you die or move into long-term care. You retain full ownership of your property throughout. Interest is charged on the loan and, in most cases, rolls up over time, being added to the balance rather than paid monthly.
Lifetime mortgages are the most popular form of equity release, accounting for over 99% of all plans sold. They are available from age 55 and can provide a lump sum, a series of drawdowns over time, or a combination of both. Many modern plans also allow you to make voluntary interest payments to control the growth of the debt.
What is a home reversion plan?
A home reversion plan involves selling part or all of your home to a reversion provider in exchange for a tax-free lump sum or regular payments. You then have the right to live in the property rent-free for the rest of your life. When you die or move into care, the property is sold and the provider receives their share of the sale proceeds.
Home reversion plans are much less common than lifetime mortgages. They are available from age 65 and you typically receive between 20% and 60% of the market value of the share you sell. The discount reflects the fact that the provider cannot realise their investment until you vacate the property, which could be many years in the future.
Key differences between the two
With a lifetime mortgage, you retain 100% ownership of your home and the debt grows over time as interest compounds. With a home reversion, you sell a share of your home so your ownership is reduced, but there is no interest to accumulate because it is a sale rather than a loan.
Lifetime mortgages are available from 55, while home reversion typically requires you to be 65 or older. Lifetime mortgages offer more flexibility with options like drawdown facilities and voluntary payments. Home reversion plans are simpler in structure but offer less choice in the market.
The long-term impact on your estate differs significantly. With a lifetime mortgage, the compound interest can substantially reduce the equity left for your beneficiaries, but you benefit from any house price growth on the full property value. With a home reversion, you only benefit from price growth on the share you retained.
Which type suits your circumstances?
A lifetime mortgage tends to be more suitable for most people because of the wider product range, greater flexibility, and the ability to retain full ownership. It is especially appropriate if you want to take money in stages through a drawdown facility, or if you want the option to make interest payments.
A home reversion plan may be worth considering if you are older and want to release a larger proportion of your home’s value, if you are uncomfortable with the idea of accumulating debt, or if you want the certainty of knowing that no interest will build up. However, the limited market and lower-than-market-value payments mean they are not right for everyone.
Get personalised equity release advice
The choice between a lifetime mortgage and home reversion depends on your age, the value of your home, how much you want to release, and your priorities for your estate. At Clearview Mortgage Solutions, our qualified equity release advisers will compare both options and recommend the most suitable plan for your situation.
Contact us for a free, no-obligation consultation to explore your equity release options.
Related guides
More guides in our equity release mortgage hub.
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