Prudential to stop offering equity release
Share
Prudential is planning to stop offering lifetime mortgages from Q1 next year.
The insurer says because of the structure of lifetime mortgages, a significant cash expense is incurred up front in acquiring new business and the payback period on capital employed is long.
It has concluded that this is not sustainable and it can deploy cash and capital more effectively across other parts of its business.
Prudential has 14,000 lifetime mortgage customers amounting to a lifetime mortgage book worth £1bn.
In 2008 lifetime mortgages equated to 3% of total retail sales. In the first nine months of this year the proportion of lifetime business had fallen to 1.5%.
Barry O’Dwyer, managing director of retail life and pensions at Prudential, says: “We can confirm that we propose to close our lifetime mortgage operation to new business in the first quarter of 2010. Our existing lifetime mortgage customers will not be affected by this decision and we will continue to manage our high quality book of business as usual.
“The focus for Prudential UK remains to compete selectively in areas of the retirement savings and income markets where we can generate attractive returns on capital employed. However, we are now placing an even greater emphasis on our disciplined use of capital and cash and playing to the core strengths of our business.
“This discipline is nothing new – it’s something we’ve been doing successfully for years but we are now giving this an even sharper focus to ensure we optimise opportunities to write profitable new business and generate attractive returns.
“This disciplined approach to balancing profitable new business with capital conservation and cash generation is crucial to the continued success of our business over the longer-term.”
The company says it will plug the cash and capital that was previously allocated to its lifetime mortgage sector to its core propositions of annuities and multi-asset capabilities.
Prudential says it is unlikely to revisit the decision to withdraw from the equity release sector.
A spokesman for Prudential says: “This isn’t about having a capital problem, it’s about where we allocate that capital.
“We do not believe that the position we have in relation to lifetime mortgages is something that is sustainable.”
Saffron Building Society, Northern Rock, Newcastle Building Society and Coventry Building Society have all decided to either suspend equity release lending or withdraw from the sector altogether in recent months.
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
