An Introduction to Reversion Plans

Peter CouchManaging DirectorBridgewater Equity Release

Definition of a Reversion plan

Under a home reversion plan a homeowner sells part or all

of the home in return for a lump sum or income and the right

to remain in the house until they die or move into care. The

lump sum or income depends on a number of factors

including the age of the owners and the value of the

property. When the former owner dies or moves into care

the reversion provider can sell the property.

Source – Defining Home Reversions (HM Treasury consultation document, July 2004)

Fundamental Differences

Reversion

• Provides the client with certainty of legacy

• A higher cash release is available

• Greater certainty of future releases

Lifetime Mortgage

• The client retains both the risk and reward of HPI and Mortality

Key Risks

Reversion Lifetime Mortgage

If client lives longer than

assumed Provider Customer

If HPI is low Provider Customer (NNEG)

Guaranteed legacy Provider Customer

When would a Reversion be more appropriate?

1. Guaranteed legacy

2. Release maximum cash / income

3. Same cash as a Lifetime Mortgage but with the

certainty of a legacy / further releases

Fundamental need to understand

your client’s attitude to risk

Years HPI Property Value

Average HPI At end of year

2 0% £250,000 0% 2

1 -15% £212,500 - 15% 3

11 5% £363,000 2.70% 14

13 5% £401,000 2.99% 16

1 - 5% £381,000 2.50% 17

5 3% £442,000 2.62% 22

An HPI scenario

Comparisons

0

50

100

150

200

250

300

350

400

Legacy £000

0% HPI 2.5% HPI 5% HPI

REV

LTM

Male, 70 yo, life expectancy 16 years, initial property value £250,000, 50% reversion, £62,000 released. LTM interest of 6.95% assumed.

Comparisons

0

50

100

150

200

250

300

350

Legacy £000

0% HPI 2.5% HPI 5% HPI

REV

LTM

Female, 75 yo, life expectancy 14 years, initial property value £250,000, 50% reversion, £65,000 released. LTM interest of 6.95% assumed.

Comparisons

0

100

200

300

400

500

600

Legacy £000

0% HPI 2.5% HPI 5% HPI

REV

LTM

Joint lives, both 70 yo, life expectancy 22 years, initial property value £250,000, 50% reversion, £50,000 released. LTM interest of 6.95% assumed.

Comparisons

050

100150200250300350400450

Legacy £000

0% HPI 2.5% HPI 5% HPI

REV

LTM

Joint lives, both 75 yo, life expectancy 17 years, initial property value £250,000, 50% reversion, £59,000 released. LTM interest of 6.95% assumed.

Maximum Lifetime

Mortgage advance

Maximum Reversion

release

Difference

£ %

Male 70 £87,500 £123,000 + £35,000 + 40%

Female 75 £100,000 £129,000 + £29,000 + 29%

Joint 70 £87,500 £100,000 + £12,500 + 14%

Joint 75 £100,000 £118,000 + £18,000 + 18%

Maximum cash release

SHIP Reversion Providers

• Bridgewater Equity Release

• GE Life

• Hodge Equity Release

• Home & Capital Trust

• Key Retirement Solutions

• Norwich Union

Regulation

Now

• MCOB 8 – Lifetime Mortgages

• Reversions must be considered

• SHIP Reversion Code of Conduct

Regulation

Future

• Queen’s speech

• Reversion regulation in 18 months

Questions?

Contacts

Bridgewater Equity Release0808 100 1065

Peter CouchManaging Director

07962 021949

Andrew DixonMarketing & Sales Manager

07917 531364

www.bridgewaterequityrelease.co.uk