Prudential, like most equity release providers, offers a negative equity guarantee and so it says this step is necessary in order to maintain prudent lending during a period in which house prices are predicted to fall by up to 25 per cent.
From next Friday, the maximum LTV for lump sum lifetime mortgages will be 35 per cent, down from 40 per cent, but drawdown LTVs will remain unchanged.
Prudential has staggered maximum LTVs for each age group and these will all be reduced by 5 per cent as well, so that a 65-year old will now have a maximum LTV 0f 20 per cent instead of 25 per cent.
Prudential director of lifetime mortgages Keith Haggart says that in the last house price crash in the early 1990s house prices in the South East fell by as much as 35 per cent and he would not be surprised to see this happen again.
Haggart says: “The equity release market needs to realign itself and we believe this is a prudent step.”
Prudential says it will honour pipeline cases submitted up until next Friday.