Home Reversion Agreements & Associated Insurances
Core concepts
A home reversion plan sells all or part of the home to a provider for a lump sum or income, while the seller retains a lifetime lease to live there rent-free. Understand equity release broadly: lifetime mortgages versus home reversion. Know the role of independent advice, guaranteed occupancy, no-negative-equity guarantees (lifetime mortgages), and the impact on means-tested benefits and inheritance. Associated insurances include buildings cover and life assurance to protect the estate.
Traps
Home reversion sells ownership (you get a fraction of market value, often 20–60%, depending on age); a lifetime mortgage is a loan secured on the property. Watch for the difference in no-negative-equity guarantee (standard on lifetime mortgages, not applicable to reversion since the property is sold). Another trap: equity release can affect means-tested benefits and reduce inheritance.
Rule of thumb
In home reversion, the older you are, the higher the proportion of market value you receive, because the provider's expected waiting period is shorter.
Worked example
A 75-year-old sells 50% of a £300,000 home. The provider might pay around 30–40% of that half's value as a lump sum, and the homeowner keeps a lifetime lease. On death, the provider owns its share; the estate receives the remaining share's value.
Consumer Credit & Associated Insurances
Core concepts
Understand regulated credit under consumer credit rules, APR and total cost of credit, secured vs unsecured lending, and credit assessment/affordability. Know payment protection insurance (PPI) and its limitations, plus guaranteed asset protection (GAP) and shortfall cover. Grasp early settlement, default, and forbearance. Recognise the regulator's focus on fair treatment and transparent disclosure.
Traps
Questions confuse APR (annualised, includes fees) with the periodic interest rate. Watch for PPI mis-selling themes (cover unsuitable, exclusions unknown) and the fact that PPI often had exclusions (e.g., self-employment, pre-existing conditions). Another trap: secured loans risk the asset; unsecured do not.
Rule of thumb
Total cost of credit = total repayments − amount borrowed. Always compare APR, not just the headline rate, when fees differ.
Worked example
Borrow £5,000 over 3 years at 10% APR. Approximate monthly payment using the annuity formula ≈ £161; total repaid ≈ £5,800, so total cost of credit ≈ £800. A lower headline rate with a large arrangement fee can cost more in total than a slightly higher rate with no fee.