Man from Pru walks away from equity release

Tuesday, 24 November 2009 01:12

Prudential has confirmed that it will stop selling equity release products in the first quarter of 2010 after six years in the market.

The insurer will stop writing new lifetime mortgage business early next year, although it will continue to manage its 14,000 existing customers.

Prudential's share of the lifetime mortgage market was around 12% in 2009 and 23% in 2008. It has a total loan book of around £1 billion.

The insurer says the decision to withdraw is a result of the upfront capital required to work in the market, which it believes would be better spent in other areas.

Prudential said when it launched into the lifetime market in 2004 it had originally intended to securitise its mortgage book - the same process by which traditional mortgage lenders sold mortgage business to investors during the housing boom. However, this was not possible because of the recession caused by the collapse of the securitisation and mortgage markets.

Prudential is the latest in a long line of equity release providers to pull out of the market, leaving Aviva, Just Retirement, and LV= as the only substantial players still writing new business in the sector.

Northern Rock, Saffron Building Society, Coventry Building Society and Retirement Plus have all pulled out of the market in recent months.

Managing director of retail life and pensions, Barry O'Dwyer told financial trade publication Money Marketing he did not expect the securitisation market to return fully for another five years.

He said: "We can confirm that we propose to close our lifetime mortgage operation to new business in the first quarter of 2010. Our existing lifetime mortgage customers will not be affected by this decision and we will continue to manage our high quality book of business as usual.

"The focus for Prudential UK remains to compete selectively in areas of the retirement savings and income markets where we can generate attractive returns on capital employed. However, we are now placing an even greater emphasis on our disciplined use of capital and cash and playing to the core strengths of our business."

"For lifetime mortgages, a significant cash expense is incurred up front in acquiring new business and the payback period on capital employed is long. We have concluded that this is not sustainable and that we can deploy cash and capital more effectively across other parts of our business."

Of the 140 people who work on its lifetime mortgage business, 100 jobs could be at risk of redundancy, although the insurer hopes to find jobs for many of these staff as possible in other parts of the business.

Andrea Rozario, director general of Safe Home Income Plans (Ship) - the equity release industry body - expressed disappointment at the departure of another provider from the equity release market.

She said: "We are naturally disappointed that Prudential has decided to withdraw from the equity release market. In the current economy finding sufficient funding is an issue that many organisations face and this shows that equity release is not immune to these issues.

"Consumers can rest assured that while Prudential may have withdrawn from the equity release market, they can still find an equity release product which suits them and their individual circumstances by speaking to one of our other members or a financial adviser.

"We hope that as the fallout from the credit crunch eases and liquidity returns to the equity release market, that Prudential as well as other big financial brands will consider adding equity release to the portfolio of products they provide."

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