Evolution sees rise in prime borrowers and value of debts consolidated

Evolution sees rise in prime borrowers and value of debts consolidated

 

And while the value of loans taken out has increased, so has the value of debts being consolidated by both prime and pure debt consolidation borrowers.

The data from Evolution Money covers close to 700 loans completed by the firm from March 2020 to February 2021 and segregates between those borrowers using loans for debt consolidation purposes, and those clients who have prime credit ratings.

The lender added that between the two six-month periods it saw a more than 40 per cent increase in the volume of seconds completed and it anticipated further increases.

It found that in the last six months until the end of February 25 per cent of its second charge mortgages taken out were by prime borrowers, up from 19 per cent in the previous six months.

And by value this had risen to 37 per cent up from 31 per cent in the March to August 2020 period.

However, debt consolidation borrowers continue to be the main customers, accounting for 75 per cent of all cases by number and 63 per cent by value.

Perhaps most notably, the value of debts consolidated by both types of borrowers grew between the two periods – by £1,936 for debt consolidation borrowers up to £15,277 and by £645 for prime borrowers up to £26,012.

 

Debt consolidation

For those borrowers specifically using a second charge mortgage for debt consolidation purposes, the average loan amount was just over £20,500 with an average term of 131 months and an average LTV of 74.2 per cent.

And on average they consolidated five specific debts.

Over the last six months, Evolution data showed the most common uses were to: pay a loan provider (49 per cent); pay a bank (37 per cent); pay off retail credit (eight per cent); and pay off car finance (five per cent).

Borrowers also used their second-charge mortgage to pay county court judgements, debt collectors, first charge mortgages and utility providers.

 

Prime borrowers

For prime borrowers, the average loan amount is £35,700 with an average term of 166 months and an average LTV of 77.4 per cent.

Prime borrowers are typically taking out these second-charge mortgages again for debt consolidation (59 per cent), home improvement and some consolidation (29 per cent) and home improvement (nine per cent).

The average number of specific debts being consolidated by prime borrowers was six.

 

More home improvement

Steve Brilus, chief executive of Evolution Money, said the firm had seen a notable uptick in both the volume and the value of second charges being taken out by those customers with prime credit ratings.

And he noted that reasons for taking out second charges remained consistent, although there was a growing desire to use funding for home improvements alongside paying off other debts.

“The increase in prime borrowers shows there is a distinct and growing customer demographic who may well have a mortgage need but are unwilling or unable to remortgage their first charge product in order to secure their funds,” Brilus said.

“As you might expect, the average loan amount for prime borrowers is higher and their uses for the money more varied, although we are still seeing most customers taking the opportunity to consolidate and pay off debts, with many also using the cash to improve their existing properties.

“This data – which will be updated every quarter from now on – does show second-charges may have a much broader appeal, especially to those prime borrowers who are not willing to extricate themselves from a first-charge mortgage especially if it means paying a substantial early repayment charge in order to do so,” he added.