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December 2, 2009updated 13 Apr 2017 8:55am

Prudential turns its back on UK equity release

A blow has been dealt to the UKs flagging equity release market with the announcement by Prudential that it is to cease writing new business in the first quarter of 2010 One of the biggest players in the market, the insurer has a total equity release book valued at about £1 billion ($1.6 billion).

By Stafford Thomas

A blow has been dealt to the UK’s flagging equity release market with the announcement by Prudential that it is to cease writing new business in the first quarter of 2010. One of the biggest players in the market, the insurer has a total equity release book valued at about £1 billion ($1.6 billion).

Andrea Rozario, director general of industry body Safe Home Income Plans (SHIP) expressed disappointment at the decision.

“In the current economy finding sufficient funding is an issue that many organisations face and this shows that equity release is not immune to these issues,” said Rozario.

SHIP, which has 16 members (including Prudential) and represents over 90 percent of industry participants, reported that in the third quarter of 2009 new equity release business totalled £236.2 million.

This was down a hefty 22.1 percent compared with new business of £236.2 million the third quarter of 2008 and continued the overall downward trend in new business evident since the fourth quarter of 2007.

New business in the first nine months of 2009 totalled £714.5 million, down 13 percent compared with £821.6 million in the first nine months of 2008.

SHIP emphasised that despite Prudential’s withdrawal from the market it firmly believes that equity release in the UK has a big future. This view, at least over the medium- to long-term, appears supported by findings by another market participant, LV=, the trading name of mutual life insurer the Liverpool Victoria Friendly Society.

Just-published findings of a survey conducted by LV= reveal that 1.3 million pre-retirees in their 50s plan to cash in their property to help fund retirement. This is despite the hefty financial blow sustained by homeowners during the financial crisis, which LV= noted has wiped an estimated £27,250 ($44,000) off the value of the average over 50-year-old’s home.

Commenting on the survey’s findings, Vanessa Owen, head of LV=’s equity release business unit, said: “Leading up to the credit crunch, many homeowners saw their property as a potential cash cow to aid retirement.

“But in a matter of months millions of pre-retirees have seen both their property and pension fund values battered.

“Despite this, their confidence in the long-term value of bricks and mortar remains.”

Indeed, for many pre-retirees their homes may well still be their last hope of receiving a decent pension. Specifically, LV=’s survey revealed that 16 percent of over-50s believe their traditional pension savings are no longer enough to retire on and that their home is therefore the strongest pension option.

A further 10 percent admitted that their home will be their only source of retirement income beyond the state pension.

UK equity release market

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