Second charge mortgages rising in popularity for prime borrowers – Evolution Money

According to the latest quarterly data from Evolution Money, in the three months up to August prime borrowers accounted for 32 per cent of second charge lending by volume and 40 per cent by value.

This is up by one per cent respectively from the previous quarter.

The average loan amount for prime borrowers increased slightly to £36,3777, and the average term also rose to 154 months.

The average loan to value and number of debts for prime borrowers stayed stable at 66 per cent and five respectively.

Prime borrowers’ primary reason for second charges were debt consolation, home improvement and some consolidation and home improvement.

Paying for vehicles, weddings or funding existing business loans and ventures were also mentioned.

Demand for second charge growing

The lender said the market for second charge borrowing had “continued to strengthen” over the previous quarter as there was sustained demand for homemovers to access housing equity while first charge pricing rose.

Evolution Money noted that whilst pricing had risen in the second charge space as well, borrowers did not want to pay early repayment charges on first charge products to remortgage, so borrowers were opting for shorter-term solutions.

Steve Brilus, CEO of Evolution Money, said: “We continue to see a trend whereby prime borrowers are an increasing percentage of both the volume and the value of the second charge mortgages we provide.

“Again, we have witnessed this particularly throughout 2022 as interest rate rises have been a major consideration for those who might ordinarily remortgage their first charge in order to access equity.”

He said borrowers were sitting put and looking for alternatives, such as second charges.

“Rates have also risen in our sector – a point which should not be forgotten – however demand for seconds continues to grow, and for those who are some way away from the end of their first-charge deals, they provide a strong alternative,” he added.

Brilus said that average loans had risen from prime and debt consolidation, and the average amount of consolidated debt borrowers were paying off had gone up.

“Given that house prices continue to be strong and have certainly risen for many borrowers particularly over the past few years, we anticipate more individuals will look to their home in order to help them meet and pay off more costlier debts,” he explained.

He concluded: “With many borrowers sitting on longer-term fixed rate first charge products which will suit them very well over the next few years, we anticipate the seconds market will continue to provide a welcome finance alternative and that advisers’ services will be in much demand in order to meet the needs of this group of customers.”