More prime borrowers turning to second charge for home improvements – Evolution Money

This was a rise from the nine per cent who went to the lender for second charge loans for the same purpose in the previous quarter. 

According to its second charge mortgage tracker, more prime borrowers are using such loans for combined home improvements and debt consolidation, with the proportion of those doing so increasing from 29 per cent to a third. 

Those using second charges for the sole purpose of debt consolidation dropped to 43 per cent from 59 per cent over the same period. 

The average value of debt was also smaller, falling from £26,657 to £20, 447 in the three months to May. 

Quick in and out

Furthermore, prime borrowers were taking out less money and borrowing for shorter terms, the analysis found. 

Compared to the previous quarter, the average loan amount dropped from £35,726 to £33,650 with the average term reducing to 166 months from 157 months. 

Borrowers also required a lower share in equity for the loan, evident by the average loan to value (LTV) dropping to 69.4 per cent from 77.4 per cent LTV.   

Debt consolidation borrowers required slightly larger loans in the quarter to May, with the average loan rising from £20,558 to £21,290. 

Meanwhile, typical second charge mortgage terms for debt consolidation borrowers shortened to 125 months from 131, while the average LTV fell from 74.2 per cent to 72.4 per cent. 

The share of debt consolidation borrowers using second charges to pay a loan provider remained flat at 49 per cent, while 27 per cent used the money to pay a bank and 17 per cent needed the money to pay off retail credit. 

Overall, the share of prime borrowers against debt consolidation borrowers was relatively flat with a respective split of 26 per cent to 74 per cent, compared to 25 per cent to 75 per cent previously.

Steve Brilus, CEO of Evolution Money, said: “Our second iteration of the Evolution Money second charge mortgage tracker shows some similarities with the first, but also a number of deviations, particularly when it comes to prime borrowers and the likelihood they will use the proceeds from their loans for other purposes beyond debt consolidation.  

“There’s still no doubting that the vast majority of both debt consolidation and prime borrowers are using seconds to pay off debts from various sources, but the number of prime customers purely using them for that purpose has dropped from 59 per cent to 43 per cent, while home improvement usage has increased.”   

“Given the nature of the first-charge market at present, with the huge levels of volumes having to be completed before the end of the stamp duty holiday deadlines, it is perhaps no wonder that many customers are not willing to put themselves into that ‘bun fight’, particularly those who want to keep competitive first-charge mortgages, who don’t or can’t remortgage, but still see the opportunity to use their existing equity to fund home improvements.

“Securing a first-charge remortgage in this situation, with many lenders and conveyancers stretched beyond their capacities due to the huge demand they are facing, is difficult, and given we – as a second-charge mortgage lender – can provide the funds required in a matter of days, it is no wonder many advisers are looking at the second-charge options available. We sense that demand from these sources will continue to grow,” he added.