Pru exit hits release sector hard

26 November 2009 | By Leah Milner

Advisers say Prudential’s exit from the equity-release market is “a hammer blow” to the sector.

MoneyMarketing.co.uk revealed this week that Pru is to stop writing new lifetime mortgage business in the first quarter of 2010. It will continue to service its 14,000 existing customers.

A total of 140 people work on Pru’s lifetime mortgage and 100 jobs could be at risk, although the firm hopes to redeploy as many staff as possible to other parts of the business.

Prudential is the latest in a long line of equity-release providers to withdraw from the market. The move follows Northern Rock, Saffron Building Society, Coventry Building Society and Retirement Plus and Newcastle Building Society which have all suspended lending or withdrawn over recent months while In Retirement Services went into administration earlier in the year.

Prudential’s share of the lifetime mortgage market was around 12 per cent this year and 23 per cent in 2008. It has a total loan book of around £1bn. In 2008, lifetime mortgages made up 3 per cent of total retail sales but in the first nine months of 2009 this had halved to 1.5 per cent.

Since news of Prudential’s exit, Aviva, Hodge, Just Retirement, LV= and Stonehaven have all moved to reassure the market they are committed to remaining in the sector.

Pru says the decision is a result of the up-front capital required to write this type of business, which it believes would be better used in other product areas. It says when it launched into the lifetime sector in 2004, it had planned to securitise its mortgage book but this has not been possible due to the state of the market.

Managing director of retail life and pensions Barry O’Dwyer says he does not expect the securitisation market to recover fully for another five years. He says: “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 this is not sustainable and that we can deploy cash and capital more effectively across other parts of our business.”

PMS chairman John Malone says: “This is a significant blow. Prudential was a heavyweight and the brand name gave confidence to consumers. It sends a stark message to the sector.”

Independent Equity Release Adviser Alliance spokesman and IFA Dermot Brannigan says: “This really is a big blow. But it is an opportunity for those who are committed to the market.”

The Mortgage Practitioner principal Danny Lovey says: “This is an absolute hammer blow for the market.”

 

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