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