Despite a “period of ongoing political and economic uncertainty,” Enterprise Finance’s Second Charge Report found that an increasing number of consumers and investors were turning to second charge mortgages.
Drawing on data from the Finance and Leasing Association (FLA) and wider industry input, the report found that the 12 months to September 2017 saw £979m lent, compared with the £892m lent to the same period in 2016.
Following strong months of lending in July and August, which loaned out £90m and £91m respectively, September 2017 was relatively quiet with a £77m figure, the same as September 2016.
However, Enterprise Finance was keen to reassure that as a single month, the September figure alone was “too early to suggest a reversal of the strongly positive trend seen throughout 2017.”
More business, at higher value
The report also found that more borrowers are taking out second charge mortgages, and at higher values: year-on-year case numbers increased 9%, from around 19,000 in March to almost 21,000 by September. Meanwhile, the average loan size jumped 3% to almost £47,000.
On an annualised comparison, July saw a 23% jump in loan size, and 21% rise in loan volumes, while August saw a 25% value hike and 11% volume growth.
Enterprise Finance said the continued growth in the second charge market was partly driven by household needs to raise capital, despite falling confidence in the property market.
Data from the National Association of Estate Agents (NAEA) published at the end of August suggested that the number of homes on estate agents’ books was at its lowest for any July since 2002, and Rightmove’s house price index showed the average UK asking price falling by 1.2% in the month to 9 September.
However, with household incomes squeezed by a combination of stagnating wages and rising inflation, large purchases such as renovations were financed by taking out a second charge mortgage – and driving growth in the sector.
Consumers were also using second charge mortgages to consolidate debts and reduce monthly outgoings, says Enterprise Finance. With relatively lower interest rates, second charge mortgages appear more attractive to consumers looking to combine debts and reduce payments.
PwC data showed that unsecured personal debt in the UK had jumped to around £300bn, while Moneyfacts warned that interest rates on credit cards at the highest for 10 years.
Moreover, with the November base rate rise to 0.5%, Enterprise Finance said the added pressure to unsecured debts could drive further growth in the second charge market.
Harry Landy, managing director of Enterprise Finance, commented: “The sector has shown resilience amid ongoing political and economic uncertainty, at a time when confidence in the property sector as a whole seems to be gradually declining.
“An increasing number of consumers are taking out second charge mortgages, and of higher value, whether it’s to fund renovations, help a family member with a deposit, or consolidate household debts.
“While we may see a few bumps in the road as Brexit negotiations stumble along, the strength shown gives us real optimism that this upward trend will continue,” he added.