Prudential withdraw from equity release, but all is not lost

There was disappointing news this week when Prudential announced their withdrawal from the equity release market from early 2010.

Their stated reason for ending their four year stint as a lifetime mortgage lender is that “a significant cash expense is incurred up front in acquiring new business and the payback period on capital employed is long. We have concluded that this is not sustainable and that we can deploy cash and capital more effectively across other parts of our business”.

Their market share was 12% in 2009 of an estimated £1bn market so another interpretation could be that £120m of lending isn’t worth the effort and, as a multi-national colossus, they can make more money elsewhere. Those who think the only winners in equity release are the lenders may need to think again.

It is worth bearing in mind that Prudential have form for this behaviour. They once pulled out of the protection market leaving clients and advisers high and dry. At least on this occasion they have given some notice and will continue to service their existing 14,000 customers.

Prudential is by far the biggest name on a list of lenders who have pulled out of equity release in recent times. With the exception of Northern Rock (who had a notional presence since their fall from grace in 2007) and National Counties Building Society, most of those were relatively new to the sector.

So the credit crunch has crunched hard on the equity release sector this year but it is not all doom and gloom.

Vanessa Owen, head of equity release at LV=, says: “We’re a little surprised at the Prudential’s move and believe it could turn out to be a missed opportunity for them. We see this market as a growth area and LV= is still committed to offering equity release.”

Just Retirement have stated that Prudential will have no bearing on its position or strategy within equity release and that the company “remains fully committed to this market for both its profitability and long term growth characteristics.”

Hodge Lifetime and Stonehaven have made similar statements.

Those that remain in the equity release market stand to make the most of others’ absence.

By David Wright
Managing Director
Sixty Plus - The Equity Release Specialist

Equity Release borrowers get benefits boost

The Government has made a number of changes to the benefit rules that may reduce the impact that equity release could have on means tested benefits.

Andrea Rozario, director general of SHIP, explained: "Over the last nine months, the Government has announced changes that we believe will mean that those consumers who wish to take out an equity release plan can do so in the knowledge that they may not see certain benefits reduce or cease all together.”

The Government has changed the rules on the application of an Assessed Income Period rules (AIP) within Pension Credit for those aged 80 years old or over. From April 2009, these customers will no longer have their retirement income and assets reviewed every five years, nor do they need to report any changes that occur to these. In effect those aged 75 and over, if in an AIP will benefit from this change.

They have raised the capital threshold to £10,000 in Pension Credit and pension age Housing Benefit and Council Tax Benefit from November 2009, which means that pensioners can have up to £10,000 in savings without it affecting their benefit. If pensioners take out an equity release product and overall their savings remain at £10,000 or below, there will be no impact on their benefit payments.

David Wright of Equity Release Specialists Sixty Plus said “State benefits have always been one of the important matters to consider when looking at equity release so it is good news for everyone that the savings limit has been increased.”