Rise in prime borrowers accessing second charge mortgages – Evolution Money

According to Evolution Money, this is up on the 23 per cent share of the market that this category of borrower held between September and November last year. 

Prime borrowers accounted for 37 per cent of the value of second charge lending over the period too, up from a third. 

Borrowers using second charge mortgages to consolidate debt made up the remaining share of lending activity. 

Second charge uses

As prime borrowers are able to use second charge mortgages for wider purposes other than debt consolidation, Evolution Money said this suggested they were more willing to use these loans in more imaginative ways.

According to the tracker, 57 per cent of prime borrowers used second charges for debt consolidation, up from 55 per cent, while 24 per cent used it for home improvement and some consolidation, up from 23 per cent. Some 15 per cent used second charge solely for home improvement, a dip on the previous quarter’s 18 per cent.  

Borrowers were also utilising second charge loans to pay for vehicles and to fund existing business ventures. 

The average second charge loan amount for prime borrowers was £34,087, down on the previous quarter’s £35,215, while the average term remained flat at 153 months. 

The typical loan to value (LTV) dropped from 72 to 67 per cent, while the average number of loans being consolidated held at five. 

The average value of debts consolidated by prime borrowers was £22,298, down from £23,160. 

More than half of debt consolidation borrowers used second charge loans to pay back a loan provider, followed by paying a bank, repaying retail credit, then car finance.  

The average loan amount for debt consolidation borrowers taking out second charge mortgages was £22,184, a slight increase on the previous quarter’s £21,488. These mortgages had an average term of 125 months, just two months up on the previous 123 month average. 

The average LTV of a second charge mortgage for a debt consolidation borrower was 72 per cent, down on 73.9 per cent while the number of loans being consolidated remained stable at five. 

The average value of debts being consolidated was also fairly flat at £15,948 compared to £15,358 in the previous quarter. 

Steve Brilus, CEO of Evolution Money, said: “Our latest tracker seems to hark back to those of a couple of quarters ago when we began to see a noticeable trend in terms of greater numbers of prime borrowers utilising second charge mortgages for other uses beyond the typical consolidation of debts. 

“With existing homeowners locked into some very favourable mortgage deals, there is little inclination to remortgage out of these products especially when the pricing is now not as good, and when they are likely to have to pay a considerable early repayment charge to do so.” 

He added: “We fully anticipate second charge mortgages becoming even more relevant to more homeowners, and advisers are much more likely to be seeing clients for whom a second charge is suitable.

“It will be intriguing to track how the seconds market grows in the months ahead, but if the start of the year is anything to go by, then activity levels should remain strong.”