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The measure of value

In Money Marketing recently , GE Life claimed that “Pru’s lifetime cut has not gone far enough”. If by this, they meant that Pru’s rate for its lifetime mortgage is not as low as GE’s, they are right.

If, however, you are looking for customer value rather than a crude comparison of rate, then it is a very different story.

A far better measure of value for a lifetime mortgage is its level of flexibility and associated savings for customers. A product with built-in flexibility can save the customer thousands of pounds in interest over the lifetime of the loan. The levels of customer and adviser interest in our new flexible product are testament to this.

For example, a lump-sum loan of 67,500 taken at age 67 from GE Life at a headline rate of 5.89 per cent will leave the customer with a balance of 189,101 at age 85.

By contrast, by drawing down the same amount of money over time with Pru’s flexible property value release plan, a customer could have a balance of 148,096 at age 85 – at an interest rate of 6.02 per cent (6.19 per cent AER). That is a saving of 41,000. This is based on a customer taking 27,500 at age 67 followed by 10,000 every four years up to the age of 83.

My suggestion is to ask the customer which product gives them better value and then make the call as to which provider “has gone far enough”.

Keith Haggart

Head of product development,

Pru Lifetime Mortgages,

London

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