Equity release market narrows

Equity release providers said this week they would not respond with “knee jerk” adjustments to their prices following the sudden withdrawal of a big name provider.

In a move that surprised many in the industry, Prudential announced it would stop selling lifetime mortgages, a type of equity release product, from the first quarter of 2010.

The Pru, one of the top four providers with an estimated 23 per cent market share in 2008, had been selling lifetime mortgages since 2005.

Lifetime mortgages allow homeowners to secure a loan on their property in order to release equity from it while they remain living there.

They are viewed as a retirement funding option for asset-rich but cash-poor older customers.

But the Pru said it was exiting the market because it was not getting a fast enough return on the loans. Repayments are made when the borrower dies or goes into care, which can be as much as 30 years later.

The decision will not affect existing lifetime mortgage customers with Prudential.

However, the insurer’s withdrawal is seen as a blow to a sector that has seen provider numbers dwindle from 20 to 11 over the past year – largely because of funding difficulties as a result of the credit crisis.

The three large remaining providers, Aviva, LV= and Just Retirement, said they were committed to dev-
eloping equity release and offering competitive products.

“While Prudential may have decided to leave the equity release market, Aviva is fully committed to growing its share of this exciting sector,” said an Aviva spokesperson.

“You are not going to see a knee jerk reaction to pricing here because we are in this market for the long term.”

LV= said it would not be changing its pricing in reaction to the Pru’s announcement, though it said it would continue to review its pricing every week “as a matter of course”.

Just Retirement said it remained “fully committed” to the market because of its profitability and long-term growth characteristics.

Equity release advisers said the Pru had offered one of the most innovative drawdown products, with a facility that increased over time, unlike other products on the market.

But they agreed that Prudential’s withdrawal from the equity release market would have a minimal effect on other providers’ rates.

Prudential had become less competitive over the past year on interest rates, with its less generous loan-to-value ratios pushing away business.

“They had an innovative drawdown product but the interest rates weren’t the most competitive and the loan-to-value ratios probably caused them to lose
market share,” said Dean Mirfin of Key Retirement Solutions.

“I think their departure will have little or no effect on competition.”

Safe Home Income Plans (Ship), the equity release industry body, said it believed the gap left by Prudential would be soon filled by other providers.

“We know that there other people who are very interested in the market,” said Andrea Rozario, Ship director-general. “There isn’t a problem with demand for these products.”