Money blog: Is equity release a good idea? Industry insiders give their view - and reveal pitfalls (2024)

Equity release refers to taking money out of your home without having to sell the property.You can take the money you release as a lump sum or in several smaller amounts.

There are two ways to do this:

• Lifetime mortgage: This is the most common type and is a long-term loan secured against the value of your property. You borrowa cash lump sum and then choose to make repayments – -there is no requirement to pay it back monthly and you can just let the interest build up. The loan and the built-up interest must be paid back when the borrower dies or when they need to move into long-term care;
• Home reversion: You sell a part or all of your home to a provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die and the reversion company then gets a share of the proceeds when your home is sold.

To be eligible for equity release you must:

• Be at least 55;
• Own a home in the UK and it must be your main residence;
• Have to meet a minimum property value – usuallyit's £75,000.

Pros

Richard Dana, founder and CEO of the family mortgage specialist Tembo, says the big benefit of equity release is it allows you to remain in the home you want to live in for the rest of your life without any risk of it getting repossessed.

It also allows you to "get access to cash where there might not be any other options".

"If people want to stay in their home but they want to repay an outstanding mortgage or they need some money for their retirement, they want to boost their retirement funds, that is the main benefit," he says.

Cons

But equity release comes with many pitfalls that need to be taken into consideration.

Mr Dana says while there is "a lot of regulation around it", it is "really expensive - particularly now".

"Unless you have to do it in the current environment, it's very expensive and it means the value of your assets that you might leave to your loved ones is going to go down a lot more. So you are going to be paying a lot more interest than you would have been," he says.

He says people must seek independent advice, speak with family and consider all options.

"Speak to not just an equity release broker but a mortgage broker - look at different options available to you. Depending on what you need the money for, you might be able to find alternative solutions, for example you can downsize."

Caroline Fletcher-Shaw, equity release legal expert atWilkin Chapman Solicitors, says that as well as reducing your estate, and therefore any inheritance you want to leave, it could also impact state benefits, as your income may be higher.

She says equity release "tends to have a higher interest rate than other products".

Property finance expert Dr Alla Koblyakova warns borrowers are "practically losing their houses".

She notes that figures show 38% are using equity release for unsecured debt repayment which means "those people are in need".

"It's a good product to improve their lifestyle but the problem is how you spend the money," Dr Koblyakova says.

"If you are just paying existing debts that means you are losing your house and being charged such high interest rates. So you are having one debt to cover another debt which is expensive.

"I would suggest thinking 100 times before going for that sort of loan. If you can survive without that loan under the current climate I would suggest waiting until at least rates go down because then you would have less losses."

What advice would you give to someone being pressured into equity release?

"I think that would be an awful situation. Reputable companies shouldn't be going out there pressuring people to do equity release," Mrs Fletcher-Shaw says.

"If individuals are approached, they need to have the confidence to take that step back until they've sought professional advice.

"Financial advisers are key - they are going to be the ones that can really help individuals and understand their circ*mstances and whether an equity release would benefit them."

Dr Koblyakova warns: "As soon as someone is feeling pushed it means there is something wrong because a fair lender would never push anyone. They would explain in detail, trying to advertise the product but definitely not pushing the product."

One more thing to think about - inheritance tax

Mark Ashbridge, co-founder and managing director of Ashbridge Partners, a finance and mortgage advisory firm, says there are possible inheritance tax planning opportunities with equity release.

"Inheritance tax is charged on the value of your assets at death - if you have released equity from your home and handed on the monies to the next generation that survive for the next seven years, then you have taken that out of your estate," he says.

"That can be quite an efficient planning tool because you can remain in your own home and you are not needing to service that interest."

It can also serve as a "means of assessing capital", he says.

However, he notes he has examples where it is more appropriate for the client to remain within the conventional mortgage market.

"Either because they don't want the loan for a long period of time, certainly not until their death, and so it makes sense to avoid the early repayment charges that could come with it."

On Monday, Rachel Reeves, the new Labour chancellor, said the Treasury had identified a "forecast overspend" for this year of £21.9bn.

As a consequence, she announced cuts worth £5.5bn this year, rising to £8.1bn next year.

The measures impacting your personal finances include:

• Winter fuel payments will be scrapped for around 10 million pensioners - those not receiving means-tested benefits;
• A £86,000 lifetime cap on social care costs, due to start from October 2025, has been postponed. There is currently no cap;
• The manifesto pledge to charge 20% VAT on private school fees will kick in from January 2025;
• The Labour plan to replace the non-dom tax status will be implemented fromApril 2025;
• The windfall tax on the profits of energy and gas companies will rise 3%, to 38%, from November;
• Ms Reeves also hinted at potential tax rises - or "difficult decisions" - in her October budget, though not income tax, national insurance or VAT.

Later in the week she was more explicit on tax.

"I think that we will have to increase taxes in the budget," the chancellor told The News Agents podcast.

That budget will take place on 30 October.

We also learned that:

• The chancellor had accepted advisory recommendations to give most NHS workers, teachers and members of the armed forces above-inflation pay rises of 5.5-6%;
• The government has offered striking junior doctors in England a pay deal - over two years - of 22%.

Want to know more? Business correspondent Paul Kelsotook a deeper dive at the Sky News screen...

On Thursday, the Bank of England cut interest rates by a quarter percentage point to 5%.

The Bank's nine-member Monetary Policy Committee (MPC) voted five to four to reduce borrowing costs, bringing to an end the joint-longest plateau for rates since the Bank was granted independence in 1997.

Lower interest rates will instantly be reflected in many savings accounts and floating rate mortgages (variable and tracker), though those selling fixed rate mortgages had long ago reflected the likelihood of lower rates.

The Bank's decision came after the consumer price index rate of inflationdropped to 2%- the MPC's target.

Our business reporter James Sillars looked at how the rate decision affects the money in your pocket here...

And for some further reading, as always this analysis from data and economics editor Ed Conway, in which he looks at what happens next, is well worth five minutes of your time...

By far the story eliciting most comments from Money blog readers this week was the chancellor's decision to scrap winter fuel payments of between £100 and £300 for pensioners not on means-tested benefits...

Consumer champion Martin Lewis was among the first to criticise the move...

A narrow majority of readers in our inbox were either furious with Labour or very worried about the winter to come (or both)...

This is terrible news for my mum. She's a pensioner with no savings but receives £4 above due to a tiny insurance after my dad died so she's not on pension credit. She struggles. It's not fair. She's lost so much cost of living stuff, now this, because of £4.

Jennyh

So now we defenceless pensioners who cannot strike or belong to a union are being hit where it hurts. Paying for being frugal and sensible and saving for our old age. I cannot believe how the Labour Party could be so vindictive. What a dilemma: eat or keep warm.

O a p

Pensioners should now retaliate to Reeves - protest at all Labour MPs' villages.

Mr cooper

I'm a Labour supporter, I voted for them, also a pensioner but I won't be supporting them any more after what they have done. Shame on you, Labour.

Sacha

This news is so unfair, my husband and I are both in our 70s, worked all our lives and because we have a small private pension we are not entitled to claim benefits. My husband has cancer and I have arthritis, it's not just the winter months we need the heating on.

Susan Molloy

Some readers contrasted the move with pay rises being offered to junior doctors and other public sector workers - which reportedly total £9bn.

How can they possibly justify taking money out of pensioners' pockets for an alleged "black hole" of finances when they give £9bn to junior doctors [editor's note: the £9bn figure is said to be across the public sector, not just doctors]. Surely the rest of the public sector is now within their rights to strike for a huge pay rise?

Sam

These readers, however, seemed to accept Ms Reeves's statement in the Commons that a previously hidden "black hole" in the public finances had been left by the Tories.

Martin, I thought you were the money guru, even you must realise if you can't afford something you don't have it. Had the Tories not lied about the country's finances then we wouldn't have a black hole which you may have been aware of.

Rodders

Difficult choices had to be made and why should anyone get help towards their costs if they don't need it regardless of age! The last government made the mess and it's got to be cleared up, as long as genuine people who need help get it and it's fair most people won't mind!

Graham

I'm one of those that will lose my £200 winter fuel payment. All good things come to an end. I don't blame Rachel Reeves, I blame Jeremy Hunt. It was he that gave the tax cuts that created the £22b black hole. It's the circ*mstances that's annoying, Hunt used it to try and buy votes.

AliG

The same reader went on...

The media is making great play of the government funding public sector pay rises. Remember all the long years of no public pay rises, 1% only rises. No wonder the independent pay review said 5.5%. I'm retired now but I got paid a lot more than a junior doctor per hour.

AliG

The Money blog is your place for consumer news, economic analysis and everything you need to know about the cost of living - bookmark news.sky.com/money.

It runs with live updates every weekday - while on Saturdays we scale back and offer you a selection of weekend reads.

Check them out this morning and we'll be back on Monday with rolling news and features.

The Money team is Bhvishya Patel, Jess Sharp, Katie Williams, Brad Young, Ollie Cooper and Mark Wyatt, with sub-editing by Isobel Souster. The blog is edited by Jimmy Rice.

Morrisons has raised the temperature in some of its supermarket freezers by 3C.

The change is part of a trial to cut carbon emissions, the supermarket chain said.

But it insisted there would be no effect on food safety.

The current industry standard of setting freezers at -18C was set almost 100 years ago and has not been updated since, despite improvements in refrigeration technology, the grocer said.

Freezers in 10 stores across the country have been changed, taking into account supply routes and the weather, with plans to roll out the temperature change to other outlets.

Cosmetics company Morphe has reportedly closed all its standalone stores in the UK.

It's changing its focus to wholesale and online.

All seven of its shops were closed on Wednesday, with 73 employees made redundant, Retail Gazette reported.

It still apparently has make-up counters in Boots, Superdrug, Selfridges, H Beauty and Flannels.

A spokesperson from Forma Brands, Morphe's parent company, told Retail Gazette its stores in Europe had faced "disproportionately high store rent obligations".

They added: "We have therefore made the difficult decision to close our seven UK and one Amsterdam retail locations.

"This move aligns with our strategy to prioritise and expand our successful wholesale and e-commerce operations, similar to our model in the US."

Co-op is adding bakery items to its meal deal range.

A trial will run for 12 weeks in stores across the country, with bakery lines classed as a side or a snack.

They'll include croissants, almond Danish pastries, and a cinnamon cruffin - a croissant/muffin hybrid.

The bakery lines can be included in both standard and premium meal deals, alongside a main and a drink, costing £4 and £5.50 respectively.

Co-op members can get a standard meal deal for £3.50 and the premium one for £5.

"Our latest offer will be available across all our delicious loose bakery items, providing an even wider choice of options to appeal to shoppers," said commercial buying manager Lyndsey Thornton.

By Ian King, business presenter

A very nasty summer sell-off has been under way now in stock markets around the world for the last 48 hours - and nervous investors got another reason to carry on selling today.

The US non-farm payroll figures – essentially a measure of how many jobs were added to the US economy last month and probably the single most-watched piece of economic data in financial markets – came in much lower than expected for July.

Some 114,000 jobs were created in the US economy during the month. That was significantly lower than the 175,000 jobs that Wall Street had expected to see created. It was the weakest figure since December last year and the second weakest since March 2020 – when the pandemic was just taking off in the West.

The June number was also revised lower from the previously healthy looking 206,000 to 179,000.

The figures, when taken alongside the number of people entering the workforce, mean the unemployment rate in the US in July rose to 4.3%. That again was worse than the 4.1% pencilled in by Wall Street.

And they have intensified fears that the world's biggest economy may be heading for a recession.

Those fears had already started to swirl when, on Wednesday evening, the US Federal Reserve declined to cut interest rates from the 5.25%-5.5% range at which they have been since July last year – only for some figures the following day pointing to a contraction in US manufacturing activity during July.

That had already put the skids under US equities even before the jobs data. All of the main US stock indices fell on Thursday – with the S&P 500, the most important index, falling by 2.5% and the Dow Jones Industrial Average declining by 1.9%. The tech-heavy Nasdaq slumped by 3.3% and the Russell 2000, the main index of smaller US companies, slid by 3%.

Those falls were added to this afternoon – putting the S&P 500 and the Nasdaq on course for a third consecutive weekly fall. The index, which was also weighed down by some mixed trading updates from the big tech companies, is now at a level last seen in May and is officially in "correction" territory.

In other words, it has fallen by more than 10% from its most recent peak in July.

There were even more violent declines in some individual stocks with Snap, the owner of Snapchat, down 30% at one point and the chipmaking giant Intel down 28%. Shares of the British chip designer Arm Holdings, which is also listed on Nasdaq, fell a further 6% and has lost getting on for a quarter of its stock market value this week. Amazon, one of the tech heavyweights whose trading updates disappointed Wall Street overnight, fell by 12%.

Other asset classes are also falling. The price of oil – demand for which would be expected to fall in the event of a US recession – is on course to complete a fourth consecutive weekly reverse with a barrel of Brent crude this afternoon hitting $77.70, a level last seen un the first week of June.

To the upside, the price of gold, a traditional safe haven for investors, this afternoon is back at close to the all-time high of $2483.60 that it hit on 17 July.

And US Treasuries (US government IOUs) have also risen sharply. The yield (which falls when the price rises) on 2-year US Treasuries, which closely track interest rates, fell below 4% for the first time since May last year while the yield on 10-year Treasuries fell at one point to 3.79%, a level last seen in December last year.

Market commentators and economists now fully expect the Fed to cut interest rates next month.

Seema Shah, chief global strategist at fund manager Principal Asset Management, said: "Oh dear, has the Fed made a policy mistake? The labour market's slowdown is now materialising with more clarity. Job gains have dropped below the 150,000 threshold that would be considered consistent with a solid economy.

"A September rate cut is in the bag and the Fed will be hoping that they haven't, once again, been too slow to act."

Michael Brown, market analyst at the trading platform Pepperstone, added: "The July US jobs report pointed to a continued cooling in labour market conditions. There is little in this report that is likely to dissuade the Federal Reserve open markets committee from delivering this cycle's first [interest rate] cut at the next meeting in September, as was hinted at in this week's statement."

European stocks, meanwhile, had already fallen on Thursday and continued those declines today. The FTSE-100 is down by 2.15% since Wednesday evening, a slighter fall than some of its peers in continental Europe, which have a greater exposure to tech stocks. The CAC-40 in Paris is off by 3.1% in the last two sessions and the DAX in Germany down by 4.1%. The MIB in Italy is down by 5.3% in the same period and the AEX in the Netherlands, an index dominated by ASML – the world's largest maker of equipment used to manufacture chips – is down by 3.9%.

Meanwhile, in the Asia Pacific region, Japanese stocks have seen a truly aggressive wave of selling.

This was due largely to a sharp rally in the yen against the US dollar following a surprise interest rate rise on Wednesday from the Bank of Japan. The weakness in the yen, which hit a 38-year low against the dollar in June this year, has been a major driver of gains for Japanese stocks this year and the currency's rally has sent the market slamming into reverse. The Nikkei 225 index, which contains Japan's top blue-chip companies, had already fallen on Thursday and today declined by a further 5.8% in its biggest one-day fall since March 2020. The Nikkei, which earlier this year hit an all-time high, is now down by 12% since 12 July.

Meanwhile the Topix, which is a broader index of Japanese stocks, fell by 6.2% in its worst one-day fall since 2016.

The interesting thing about this latest sell-off is that, during recent years when central banks like the Federal Reserve and the Bank of England kept their policy rates at ultra-low levels, bad news for the economy was taken as good news for markets on the basis that it would persuade central banks to hold rates lower for longer.

That all changed when, in December 2021, the Bank became the first major central bank around the world to begin raising interest rates and was followed soon after by the Fed.

Now, with the "normalisation" of interest rates under way for more than two years, bad news for the economy is back to being treated as bad news for the markets.

Korean Air has said it will stop serving instant cup noodles on board its planes for safety reasons.

The snack, known as ramyeon, requires boiling water.

The South Korean airline said the snack could be a scalding risk and it was making the change as part of its response to increased incidents of turbulence.

There has been concern since a Singapore Airlines flight was hit by severe turbulence in May.

The plane dropped 54m (178ft) in just four seconds.

Cup noodles have been apopular part of the airline'sin-flight service and featured heavily on social media.

They will not be served totightly seated economy classpassengers from 15 August.

Alternatives will includesandwiches and corn dogs, the airline said.

It announced last month that it would finishlong and medium-haul cabinservices 20 minutes earlier, ending 40 minutesbefore landing.

Being a TikTok presenter and a historic character at a theme park are among the most popular jobs this year, according to new research.

Data management officer positions are the most searched for roles, according to results from jobs site CV-Library.

Other popular searches include CCTV controller and train conductor.

Not everyone is chasing glory and Britons are keen to "make a difference", saidLee Biggins, the chief executive of CV-Library.

Emergency call handlers and social sustainability roles are "also high up the wish list", he added.

It demonstrates that job seekers are "looking for more than just money in 2024".

For employers keen to attract new talent he said that creating a "fun and supportive work environment" and having a "clear company mission" are useful.

Here's the top 10 most-wanted jobs of the year, according to CV-Library

1. Data management officer

2. Theme park historic character

3. TikTok presenter

4. CCTV controller

5. Customer contact adviser

6. Head of social sustainability

7. Packaging operator

8. Food and beverage team member

9. Manual line operator

10. Inventory operator