Prudential withdraws from equity release market
The equity release industry was reassuring consumers on Tuesday that the market for lifetime mortgages remained strong in spite of the sudden withdrawal of one of the leading providers.
In a surprise move the Prudential said on Tuesday that it is to stop selling equity release products, also known as lifetime mortgages, from the first quarter of next year. The decision would not affect existing customers, said the Pru.
The Prudential, one of the top three providers, has been selling lifetime loans since 2005, but its decision to withdraw is believed to be due to access to funding for the loans, which can take 20-30 years to be recouped.
Lifetime mortgages offer an alternative for asset-rich but cash poor older customers allowing them to release equity from their home, within which they can remain living, with the loan secured on the property.
The debt is only repaid once the borrower dies or moves into care.
Prudential marketed its mortgages exclusively through intermediaries. Its decision to withdraw will be a blow to the industry which has seen the number of providers drop from 20 to 11 over the past year.
"We are naturally disappointed that Prudential has decided to withdraw from the equity release market," says Andrea Rozario, director general of Safe Home Income Plans, the trade body for the equity release industry.
"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."
However, Rozario said she firmly believed that there was strong market for lifetime mortgages, now and in the future.
"Consumers can rest assured that while Prudential may have withdrawn from the equity release market, they can still find an equity release product which suits them and their individual circumstances by speaking to one of our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," added Rozario.
The market was still assessing how the Pru's departure would affect the range of products and interest rates offered to customers. However, Rozario said the gap left by Prudential could be filled by other providers.
"We know that there other people who are very interested in the market," she said. "The problem here was a reaction to funding issues, not the market where there is plenty of demand."
The remaining providers are reassuring customers this week that they remain committed to the sector.
"While Prudential may have decided to leave the equity release market, Aviva (LSE: AV.L - news) is fully committed to growing its share of this exciting sector," said Aviva.
"The industry has seen sales of over £714m thus far in 2009 and we believe that the market will continue to grow."
Just Retirement (LSE: JR.L - news) , another provider, said that Prudential's decision would not have a bearing on its own strategy.
"Just Retirement remains fully committed to this market for both its profitability and long term growth characteristics," said the group.
"We will continue to support IFAs and customers while seeking to develop our proposition further."
The Prudential's lifetime mortgage was offered to homeowners aged between 55 and 84 and was marketed by the company as offering customers more flexibility than some providers.
Its lifetime mortgage enabled homeowners to guarantee an inheritance of either 10 or 20 per cent of their existing house value without affecting the amount of equity they can release through the plan. It also had a drawdown product which enabled borrowers to release cash as and when required.
Related Headlines
Top Stories
Copyright The Financial Times Limited 2010.