Prime borrower use of second charges for debt rises in Q3

Research by second charge lender Evolution Money revealed the proportion of loans lent to prime borrowers rose from a share of 26 per cent in Q2 to 35 per cent in Q3. 

Over the same period, the value of second charge loans taken by prime borrowers dropped from 36 per cent to 32 per cent. 

Evolution Money’s figures showed that more prime borrowers were primarily using second charges to consolidate debt. Some 52 per cent took a second charge loan for this reason, up from 43 per cent during the previous quarter.  

Over Q3, home improvement with some debt consolidation accounted for 32 per cent of second charge loans taken by prime borrowers, while 12 per cent used the money solely for home improvements. 

On average, prime borrowers were consolidating five debts using a loan, the same as the previous quarter. Meanwhile, the average value of debt rose to £22,366 from £20,447.  

The average loan amount saw an uptick from £33,650 to £33,794, with the typical term rising from 157 months to 161. The typical loan to value (LTV) tier of a prime borrower using a second charge remained flat at 69 per cent. 

Debt consolidation borrowers 

For adverse borrowers needing to consolidate debt, the average loan amount stood at £21,151, down from £21,290. 

Over half used the money to pay back a loan provider, followed by paying a bank, repaying retail credit, and paying off car finance. 

Evolution Money analyses data from two different types of its second charge mortgage products, split between borrowers using the loans for debt consolidation purposes, and those with prime credit. 

Steve Brilus, CEO of Evolution Money, said: “The overwhelming reason for either prime, or any other, borrower to take out a second charge mortgage is still to pay back debt of some kind, however prime borrowers are increasingly likely to want to use some of the money to make improvements to their home. 

“Inevitably, there has been a focus on house price values over the last 12 months specifically, as many of the UK house price indices are showing close to double-digit growth. Homeowners want to be able to access some of the increased equity this has generated, and we have continued to see strong volumes of business for second-charge mortgages as a result.” 

Brilus said he anticipated the trend towards prime borrowers to rise as housing demand remained high and supply was low. 

“Many homeowners are looking at their options to achieve greater space in the current environment and deciding that the best way to do this is via extending their existing home, rather than moving and having to pay significantly more for properties and cover the fees that accompany any purchase,” he added.