Those who have been around the equity release sector for a while, will know that there are also home reversion plans, and if we can say that equity release is a sector that punches above its weight from a media focus, then certainly for a while at least, home reversions did something similar.
However, home reversions have been something of a forgotten entity in recent years, quite simply because – after a number of notable providers shut their doors to new business – there has effectively only been one left, Crown Equity Release.
At the moment, there are a number of rumours circulating around the market that some new home reversion providers might well launch in 2022, and we await to see if that is truly the case. However, even with just Crown leading the field, reversions might still be an option for clients who want and need to release equity but, for all manner of reasons, might not be able to do so via a lifetime mortgage, or other later life lending option.
In that respect, then yes you can probably say a home reversion plan is unlikely to be a ‘go to’ option for the vast majority of later life customers, but for a couple out of every 100 it might well be.
Which might present something of an issue for advisers, but not an insurmountable one. The reason being that, to write home reversion business, advisers need to have separate permissions and authorisation and, given that there are not many clients that fit the bill, many have either let that lapse or may not feel entirely confident in working in this part of the market anyway.
As mentioned, it’s not insurmountable. Advisers who recognise that a reversion might be the right option for a client can utilise Air’s reference service – we can refer the client onto an adviser/firm that has the requisite permissions and ensure there is a guaranteed no cross-sell arrangement in place. In that way, the client can get what they need, and the adviser does not lose out in terms of either income or retaining that customer.
So, what type of clients might be suitable?
Well, as you may know, this is not later life lending as such, it’s the provider actually either buying 100% of the property outright or a smaller percentage with the option to sell buy in the future.
And because this is a ‘purchase’, Crown, for instance, are able to buy properties which ordinarily wouldn’t fit the bill for a lifetime mortgage or other later life lending provider – for example, properties with spray foam insulation, properties with a single skin, properties which are attached or close to certain commercial properties, properties which might be in something of a state of disrepair, properties which are beyond the norm.
With a reversion, the provider purchases the percentage of the property the owner wants/needs to sell, and as a result, the owner gets to live there rent-free with, as mentioned, options to sell more later on, options to downsize if they wish, options to purchase, or indeed options to pay off an interest-only mortgage albeit with a rent payment attached.
There are certain clients who this might be suitable for, especially those who may initially have wanted to go down the lifetime mortgage route, but have found their needs, circumstances, and property type do not fit the bill.
Overall, it’s clearly the case that reversions are not going to be playing a majority role in a later life adviser’s working life, however they can be a useful part of the toolkit, and as a result should be considered seriously for those who are suitable.
Obviously, provider numbers are limited in the extreme at the moment. Those who did once play a major role here are now mostly looking after their existing book of properties rather than taking on new business, but with Crown and potentially some new entrants coming through in the future, there should be a relatively competitive market to choose from.