The most important points

• A partial home reversion is the first step towards the later sale of your entire property. Buying it back is so expensive that it is rarely possible.
• If the property is bought back or sold in full, the home reversion provider always receives the partial sale price plus an “X” amount for its percentage of the property, even if the property has not appreciated in value.
• To use the property, you will have to pay a rental fee. If at some point you are no longer able to pay, your home may have to be sold and you would then have to move out.
• You will continue to incur running costs for the property after selling a portion of it.
• After the partial sale of your home, you will receive the price agreed for the partial sale, but the euro amount you will ultimately keep of your property will only become apparent much later, once the total sale has been transacted.
• • There is no government authority that will take responsibility for the solvency of the party buying a share of the property. If this buyer were to become insolvent, their insolvency could pose a considerable risk for you. The property may be put up for compulsory auction if you are unable to gather the funds to buy it back. The question of whether you will be able to continue using the property on the former terms even if the party that has bought part of your home is insolvent, and what will happen if your home is put up for compulsory auction, will depend on the arrangements in your contract and how your right to use the property is secured according to the land register. You should obtain legal advice on the matter in any case.

What is a partial home reversion?

With a partial home reversion, you sell up to 50 percent of your home to a company. At the same time, you authorise the home reversion provider to sell the property later on. The total sale takes place after your death at the latest. Your property can be sold during your lifetime, if you wish – or even against your will if you do not fulfil certain contractual obligations. In most cases, you (or, later on, your heirs) are entitled by contract to avert the total sale of the property by buying back the percentage already sold.

Until it is sold in full, you can continue to use the property – by living in it or renting it out. For this purpose, you are granted a special right to use the property, which is usually a right to usufruct. You have to pay a monthly fee for this use. This rental fee is defined in the contract but may be raised by the home reversion provider later on.

The conditions for a later total sale, a possible buy-back and all the reciprocal rights and obligations which you and the home reversion provider agree on are arranged early on, when the partial home reversion is carried out.

What are the pitfalls?

A partial home reversion may be touted as a fast, simple solution. In actual fact, it will not keep much of what it seems to promise based on the advertisements. Many of its disadvantages will only show up later, i.e. when the property is actually sold in full to a third party. You should be aware of the following:

The processes involved in the partial home reversion may give you a false impression of the market value – or attainable selling price – of your property. The determining factor for the transaction is the market value calculated by an expert. This is the basis for the price for the partial sale. The rental fee and other charges and costs are calculated on the basis of the partial sale price, i.e. also, if indirectly, on the basis of this market value. For the buy-back or sale of the entire property, it is typical for the then-current market value to be determined in a new appraisal.

The market value is not the same thing as the actual current or later selling price. The market value is an approximated value. Experts have some leeway for taking certain factors into account when calculating the market value. Different experts appraising the property as at the same reference date may arrive at different amounts. Since market values always refer to a particular date, they may be higher or lower at another point in time. The selling price, however, is the value that a buyer is actually willing to pay for the property. You will only receive a realistic selling price by obtaining purchase offers for your property.

A partial buy-back is so expensive that it is usually out of the question. Buying back your percentage of the property in order to avoid its being sold in its entirety is an option, but nearly always only in theory. The price you would have to pay to buy it back may significantly exceed the partial sale price that you originally received from the provider. The actual amount of the difference will depend on your contracts.

The price for the partial sale “plus X” is usually the minimum buy-back price that you are required to pay. If the market value determined by the expert is higher upon buy-back than the market value upon the partial sale, the buy-back price will increase as well. Added to the buy-back price are the agreed fees charged by the partial home reversion provider and other costs. In particular, you generally have to reimburse the ancillary costs relating to the purchase that were initially borne by the provider. What is more, there will also be ancillary costs for the buy-back (notary fees, costs for the transfer of title in the land register and real estate transfer tax), which alone make for a total of approximately 8 to 9 percent of the buy-back price.

Failure to meet certain contractual obligations may result in the sale of the property. You can continue to use the property as long as you meet your contractual obligations. In particular, you must pay a monthly rental fee in the amount of a certain percentage of the partial sale price. The percentage approximately reflects the interest rate for mortgage loans plus an additional fee. For a rental fee of five percent of the partial sale price per year, for example, the partial sale price received would be depleted in twenty years. The rental fee is typically fixed only for a certain period of time. The longer the period for which it is defined, the higher the monthly rental fee. Once this period has elapsed, the fee may be raised. The extent to which it is raised usually depends on how a certain interest rate, specified in the contract, develops. When concluding the contract, you will not be able to predict what this interest rate development will be.

If you are unable to pay the rental fee, your failure to pay constitutes a breach of contract. Once the failure to pay exceeds a certain amount or period of time, under the usual contractual terms you will have to accept that the home reversion provider will sell the property and you will have to move out. This is also generally true in the event of various other breaches of contract. The sale of the entire property and your moving out may be initiated quickly. As a rule, you will have to have already submitted all the declarations legally required in this case when implementing the partial sale of your home.

A high price for a partial sale is a disadvantage for you. A high partial sale price sounds good. After all, you will initially have a great deal of money paid into your bank account. However, a high price for the partial sale means high fees and costs that you will have to pay to the provider. These fees and costs are calculated as a percentage of the partial sale price (which is ultimately based on the market value determined).

If you agree to a high partial sale price, it is more likely that you will receive less from the proceeds from a sale of the property to a third party than your percentage of ownership is worth. The reason is that home reversion providers contractually secure their return on a regular basis. It is typical that these contracts provide for the company to receive a minimum amount of the proceeds that is independent of the actual proceeds from the sale of a property. If the price obtained for the sale of the entire property is lower than the minimum amount of the proceeds agreed with the home reversion provider, you will be the one bearing the cost.

You should not underestimate the risk posed by contract clauses providing for an entitlement to a minimum amount of the proceeds. Your property would have to increase in value considerably for these clauses not to apply. The longer the amount of time between the partial sale and the sale in full, the more difficult it is to say how much a third party will actually be willing to pay for the property. The way in which the residential real estate market will develop cannot be extrapolated from past values. A reliable prediction of the selling price that will be attainable for a certain property in the next ten, twenty or more years, within the time window envisioned for selling it in full, is even less possible.

Insolvency of the buyer poses significant risks: The home reversion provider usually works with a lender to refinance the partial sale price and the ancillary costs in connection with the purchase. It is a special feature of the “partial home reversion” business model that you are generally involved in this aspect of the deal. For example, you are required to agree to the encumbrance of the entire property with a land charge, in favour of the home reversion provider’s lender. You may also have to agree to the provider’s lender being given a better position in the land register than you with your right to use the property. If the home reversion provider becomes insolvent, this land charge may become a significant risk for you. In light of this possibility, it is important at least to ensure legally that you are able to continue using your home on the terms applicable so far. The land charge entitles the lender, under certain circumstances, to have the property put up for compulsory auction – you might then have to move out. If this were to happen, you should make sure that you would at least not have any financial disadvantages compared to a sale of the entire property. Whether this is the case will depend on the specific agreements you have entered into. For someone without a legal background, such agreements tend to be difficult to understand without some explanation. In this respect, we recommend that you seek legal advice.

Since this is about your home, it is important that you make sure you are protected in case the home reversion provider becomes insolvent: there is no government authority that will take responsibility for the provider’s solvency. Home reversion providers are usually companies that have only been in business for a few years and therefore have no real track record of success with balance sheet documentation. The same is true for those acting under well-known brand names. In the vast majority of these cases, the party buying a share of the property is not the home reversion provider itself but companies that are specially set up for the purposes of the partial purchase.

What you should be aware of

Compare offers: Take a hard look at the advantages and disadvantages a partial sale may entail! There are sometimes significant differences between the various providers – for example, payment of the partial sale price in one lump sum or in instalments, the amount of the rental fee and the various fees, charges and costs. Some partial home reversion providers participate in some of the running costs of the property. Others do not. Go through the offer calculations as carefully as you can. You can use our checklist for this purpose.

Check the alternatives: Take other financing possibilities into consideration as well. Some lenders offer older consumers special mortgage loans with low rates, for example. Some of these loans do not need to be paid back, or paid back in full, during the borrower’s lifetime. In addition, there is also the possibility to sell your property in return for the payment of a fixed-term or lifelong annuity. Make sure you also include selling the property, together with a move, in the scenarios you compare.

Consult people you trust: Let your children, relatives or close friends in on your considerations of a partial home reversion as soon as you begin entertaining the idea. By explaining to others what we plan to do, we often realise whether or not we have understood the transaction and whether or not it is really the right thing for us.

Make use of others’ expertise: Involve independent, professional advisors at an early stage in order to obtain an economic assessment of partial sale offers. One possibility is to contact the local offices of the consumer centres. The consumer centres have also compiled comprehensive information pointing out the disadvantages of a partial home reversion (only available in German). Have a lawyer review the contract drafts.

Clear up any confusion as soon as possible: Make sure all your questions are answered before you sign. An appointment for a notarised signing can be postponed, or you can walk out of the appointment without signing the contracts. Once you have signed, however, it will be too late to have reservations – you will be bound to the contracts. Do not let anyone rush or put pressure on you!