Debt consolidation is driving second charge borrowing

The second charge lender said higher costs in the first charge market for a full remortgage are pushing people to look at shorter-term alternatives to meet financial needs.

Around two thirds of second charge borrowers fall into the bracket of using the cash for debt consolidation only.

These borrowers take an average loan of £25,178 over 135 months and are typically consolidating six debts worth £18,322.

Around a third of second charge borrowers have a prime credit rating and may be using cash for debt consolidation among other reasons.

This cohort take a considerably higher average loan of £37,170 over 158 months. When consolidating debts they are worth £24,422.

Borrowers specifically using a second charge mortgage for debt consolidation have seen the average loan amount increase from the previous three months.

“Many borrowers looking for alternatives to straight remortgaging”

Evolution found more than half of these customers were using the money to pay back a loan provider, while around a quarter were paying a bank, and 14 per cent were paying off retail credit.

Among prime borrowers two thirds take a second-charge mortgages for debt consolidation, 15 per cent for home improvement while a similar number use it for a combination of the two.

Steve Brilus, chief executive of Evolution Money, said: “This latest tracker shows what is happening right across the financial spectrum for many individuals in the UK right now, with pressures from high inflation continuing to bite and the increased cost of first charge mortgage rates meaning many borrowers are looking for alternatives to straight remortgaging which would undoubtedly cost them more than their existing first-charge.

“Add in the potential for early repayment charges, plus increased costs for other types of borrowing, and it’s not surprising to see homeowners looking at the ways and means by which they can extract equity grown over the last few years, specifically to pay off higher-charging debts, but also to fund other commitments.”