Prime borrowers using second charge rose in Q1 – Evolution Money

This compares to 27 per cent by volume and 37 per cent by value in the previous quarter.

The report said that the rise could be due to rising first-charge mortgage product pricing and interest rates, and existing borrowers not wanting to remortgage onto poorer deals to release equity.

It added that prime borrowers were more likely to hold on to their existing first charge and then use a second charge to fund specific things, such as home improvements or paying off debt.

The report added that the average loan amount for a prime borrower had risen from £34,087 in the prior quarter to £36,361 now.

The average loan to value (LTV) for prime borrowers came to 66.5 per cent, which compares to 67 per cent in the previous quarter.

The average term for prime borrowers stayed stable at 153, along with the average number of debts consolidated at five.

The average value of debts consolidated by prime borrowers was £24,182, up from £22,298 in the previous quarter.

The report said that prime borrowers were taking out second charges for debt consolidation, home improvement and some consolidation or solely home improvement.

Other uses included paying for vehicles, funding existing business ventures or paying for a wedding.

Debt consolidation borrowers

The report said that debt consolidation borrowers made up 69 per cent of its total second charge lending volume and 60 per cent of its value.

This compared to 73 per cent of total second charge lending volume in the prior quarter and 60 per cent of value.

It added that the average loan amount for debt consolidation borrowers was £24,2438, up from £22,184 in the prior quarter.

The average term lengthened slightly to 130 months, up from 125 in the previous quarter.

The average value of debts consolidated also rose from £15,948 in the previous quarter to £17,799 in the current quarter.

Some of the most common uses for the loan was to repay a loan provider, retail credit or car finance.

‘Strong start’ to 2022

Steve Brilus, chief executive of Evolution Money, said that the reasoning for more prime borrowers using second charges was clear, pointing to increases in the Bank of England’s base rate and borrowers not wanting to remortgage on to a more expensive product.

He explained: “Instead, with a second charge, they are able to secure the finances they need, which they can then use for a whole range of purposes. As always, paying off other debts is a primary use, but many are also accessing their equity to make further home improvements, to use for business purposes, to purchase cars or indeed to fund a wedding.”

Brilus said that house price increases over the past two years allowed prime and debt consolidation borrowers to secure higher average loan amounts than seen in previous trackers.

He added that if borrowers were paying higher rates of interest on other debts it made sense to use a second charge to get a cheaper rate.

“This has already been a very strong start to 2022 for the second charge market and given the likely direction of travel for interest rates in the first charge space through the rest of the year, we fully anticipate that both advisers and consumers will continue to see the value available in a second-charge mortgage,” he added.