Age is no barrier
A reversion plan could give retired homeowners reluctant to take on another mortgage the freedom to move, says Peter Welch, head of sales and distribution at Bridgewater Equity Release
When we think of individuals buying their own homes it is quite likely we will have a specific age range in mind.
The general assumption tends to be that first-time buyers will be in their 20s or 30s, although this is getting older all the time. We would perhaps think of second purchasers with families in their 30s and 40s and the final age of house purchase is generally assumed to be people who are looking for more space and quality in their 40s and 50s.
It is rare for us to think of those in retirement moving and buying again. It is assumed that individuals in retirement are comfortable with where they live and do not want the hassle that comes with a move.
But this is not the case. The number of people who are over 65 and looking to move is growing all the time.
This may be because they now have an empty nest and a house that is too big for their needs and are looking to downsize to a more manageable property.
Today, this is just as likely to mean upsizing, where an individual looks for a better quality property in a nicer area, a property closer to family or one more suited to their current lifestyle.
This means many more retired people are walking into estate agents looking to buy property and requiring the services of financial advisers.
Many of these buyers will not have the necessary cash savings or equity in their current property to fund another purchase or will not want to fund it through these methods and use up a big portion of their savings. It is also not uncommon for these people not to want another mortgage of any type, given they will probably have spent 25 years of their lives paying the last one off.
It is at this point that agents and advisers, who have active referral relationships with specialist equity-release advisers, will discuss the possibilities for these clients, as many will find a home-reversion plan could provide the solution in funding such a move. We have seen a threefold year-on-year increase in the number of customers who are funding house purchases in this way.
As an example of how this might work, a man aged 73 is moving from a terraced house in Ipswich to a bungalow in Felixstowe to be closer to his family. He is selling at £150,000 and buying for £250,000, leaving a shortfall of £100,000. A home reversion can be used to release £100,000 of equity from the house he is moving to, funding the difference in price.
The provider would buy a 77 per cent share of the new home and the client can live there rent-free until death or moving into long-term care. Crucially, he retains 23 per cent of the equity in his home, which can be left as an inheritance or used to provide future cash releases if needed.
There can be many benefits in such a solution and reversions offer a valuable alternative to some of the unregulated lifetime lease plans available on the market.
In some circumstances they offer much better value for money and customers can be confident about the regulation on the product, provider and adviser and the considerable protections that are offered, not just through regulation but also the fact that Safe Home Income Plans guarantees are in place.
Reversion plans can allow the individuals concerned not just to fund the purchase but also use some of the money for home improvements and to pay off debts. The customer need not worry about being subject to credit-scoring or affordability testing given no mortgage is involved.
This solution will not be appropriate for everyone over65 looking to buy a new property but for some it will offer an opportunity to get them where they want to be, without the worry of any debts to pay during that time and with the security of tenure that comes with a reversion plan.
It is important for agents and advisers to make contact with a local equity-release specialist to provide referrals and ensure that such interest can turn into transactions and introducer income.
It would be tragic if retired homeowners wanting to improve their quality of life by moving home do not move purely because they are unaware there is a way of funding it.