Exit strategy

19 March 2010 12:00 pm | By Paul Thomas

Stonehaven Equity Release is the latest in a long line of providers to suspend lending, proving that funding remains a big problem for the sector.

Following the exits of Prudential, Northern Rock, Saffron Building Society, Coventry Building Society and Retirement Plus, Stonehaven was keen to emphasise its commitment to the market in 2009. However, funding problems led to its withdrawal from new lending last week. The departures mean Aviva, LV= and Just Retirement are now the main players remaining in the sector.

A statement on Stonehaven’s website said: “All new lending is suspended temporarily. We will continue to honour applications received in the next four weeks and have extended our completion deadline to six months.”

Speaking to Money Marketing, Stonehaven chief executive Jayne Almond says there are difficulties in the bank model of funding in the equity release market but stresses that talks to find new sources of finance are ongoing.

She says: “There is a mismatch between funding a very long-term asset, like a lifetime mortgage, through shortterm deposits, which is a fundamental problem with bank funding.

“We are in active discussions with a number of parties to find new funding sources. It is a pity but, hopefully, we will be back.”

The decision came as no surprise to Independent Equity Release Adviser Alliance spokesman and IFA Dermot Brannigan. He says: “I had an idea before Christmas they were going to go next.

On the face of it, it looks like lenders are dropping out left, right and centre but there are still very active lenders and an awful lot of choice out there for the consumer

But Brannigan adds that this latest exit “opens up the market for new providers - non-UK providers, perhaps”.

Safe Homes Income Plans director general Andrea Rozario says: “We may well see some new entries in the market and, as it stands at the
moment, we are undergoing a time of change.” Rozario insists that while there have been a string of players exiting, the sector remains active. She says: “On the face of it, it looks like lenders are dropping out left, right and centre but there are still very active lenders that may be doing more business because some have left the market. There is still an awful lot of choice out there for the consumer.”

Retirement Plus managing director Duncan Young believes, however, that building societies are unlikely to return to the sector.

He says: “I cannot see building societies coming back because their funding model is flawed when it comes to equity release. Building Societies now have very heavy prudential FSA involvement in terms of their funding.”

Young also says losing Stonehaven was a blow for product innovation as he believes it was among the most innovative in the sector.

He says this is more worrying than the prospect of price increases following its withdrawal. He says: “Stonehaven were really good at product development. It is the loss of that sort of emphasis that is more worrying than the effect on rates.”

Exact managing director Alan Cleary feels the equity release market will have to wait longer for a recovery than other areas of lending, because funding will be diverted to more attractive sectors.

He says: “The big issue is liquidity. For me, equity release is about as far removed as you can get from it in the spectrum because you are taking a punt on how long that borrower is going to live.

“If you invest money in a deal and want to keep it relatively liquid, equity release is not where you put it. “I think the sector will probably come under increased pressure.

Liquidity is going to have to come into the market generally and I think it will flow into equity release after everything else. There is going to
be a pecking order ofgetting your hands on new money and the likesof Stonehaven will be pretty low down that pecking order.”

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