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Once in a lifetime

When news broke that Prudential would be launching into lifetime mortgages, there was a sigh of relief from the industry.

With the domination of the big brands over the past decade or so – Mortgage Express, GE Life and Norwich Union to name but a few – it appeared it was high time for another well known life office to make the move into the marketplace.

Pru previously had a white-labelling agreement with Northern Rock but had become increasingly vocal about the lifetime and reversion market, partic-ularly when NU announced this year that it would be launching a reversion product. With the Pru’s director of lifetime mort-gages Ali Crossley becoming more and more vocal, it seemed inevitable that the firm would make the move into lifetime mortgages.

The FSA’s review and mystery shop of equity release in May saw Pru take account of some of the concerns raised in its products.

Newly appointed head of sales (equity release) Jan Holt says: “The FSA report was pretty good timing for us. We responded to the points that customers and advisers were raising.”

The FSA raised many concerns, one being that some advisers recommend consumers to release a lump sum and reinvest it, for example, in an investment bond, and take withdrawals to provide a regular income stream. As well as being more expensive for the customer, reinvesting capital in equity-backed investments exposes consumers to unnecessary risk.

Pru’s property value release account allows customers to draw their money in smaller lump sums. Remuneration for advisers is fee-based which removes the incentive for them to recommend drawing down a large amount of money up front, on which they would get commission.

There are two options to the lifetime plan, the first being the flexible plus option. Maximum loan to value starts at 15 per cent at age 60 and increases by 1 per cent of the property value each year to a maximum of 35 per cent. This increase is guaranteed. Holt says: “This increase in loan is based on the original property price so there is no need to revalue the property down the line.”

The second option is the flexible option. The customer initially is able to borrow 20 per cent at age 60. The maximum LTV is higher depending on age. Once the loan facility has been agreed, it will not increase each year but the customer can still draw down money at any time throughout their retirement. Minimum loan is 20,000 and minimum advance is 5,000.

The Pru product is not the only drawdown product available in the market but Holt believes there is a significant difference between its product and others. She says: “There are very few limitations. Other drawdowns have time limits, for example. With us, you can effectively buy from age 60.”

Latest results from the market suggest that equity release has not produced the figures it promised but Holt says: “The equity-release market has slowed down slightly but overall it has grown significantly over the years. There are several reasons why it has slowed down. There has not been that product innovation for a while. It definitely needs stimulating. That is where we come in because the Pru product is unique and, of course, there is the Pru brand.”

Holt believes the industry can get a significant boost from mortgage intermed- iaries and IFAs themselves. She says: “IFAs have got to take on board the drive for growth. Some are failing to consider equity release as a viable consumer need. FSA regulation says you have to consider it before you can discount it. They have to find the appetite and the ability to move the market on.”

Holt believes she has one of the most sizeable and knowledgeable product teams available. Sales development manager Mark Spooner, who will have one foot in the product team and the other in the sales team, joins Karen Stalahass and David Taylor who are fixed business development managers. Supporting them are two business develop-ment managers in the field, a telephone-based team of seven and three phone acc-ount managers supporting intermediaries by phone.

A page has also been dedicated to equity release on the Pru adviser website. A key features illustration form will be available for IFAs and intermediaries from the end of August. Third-party administrator Global Home Loans has been brought in to help provide an auto- mated service. GHL has dev-eloped the technology to link the quotation, originations and servicing platforms so all the information will be coming from a single database.

The aim of the Pru and GHL is to have case-tracking and online applications further down the line. Pru had initially intended to launch the product with rates some time in September but this has been put back to October.

Pru will continue to track the trends in equity release and speak to mortgage intermediaries and IFAs to increase their knowledge of the market.

Holt believes this consumer-led market will start to become a sizeable part of advisers’ offerings and the Pru will be there to guide them.

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