Speaking at The Specialist Lending Event, Chris Pedlar, head of specialist distribution for the North at United Trust Bank (UTB), said that over the last 12-13 months, there had been a “steady increase every month” in the second charge market.
He noted that the second charge market was worth around £1.7bn annually, and approvals for second charge loans were rising 17% year-on-year.
Pedlar added that, in 2024, the second charge market had assisted around 36,300 people, which accounts for around 15% of customers with an additional lending need.
He said that, looking ahead for this year, there were 42,000 households that would take out a second charge loan.
Pedlar said there was a misconception that second charge customers were non-prime, but around 65% of customers were prime customers.
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Looking at use cases, he noted that 71% of second charges have been used for the consolidation of existing loans and 23% for home improvements.
He said another misconception with second charges was that this was expensive, but that was not the case, with rates starting with a five and deals with and without early repayment charges (ERCs), as well as unlimited overpayment facilities.
There is also product flexibility, with loan to values (LTVs) going up to 90%, as well as tracker and fixed rate deals.
Many lenders also have the facility to plug in with a broker CRM system to make it a quick and easy process for brokers.
Facial recognition and high use of automated valuation also speeds up the second charge process.
Rising debt is opportunity for second charge debt consolidation
Pedlar said consumer debt was rising in the UK, with average UK household consumer debt standing at £17,076.
Around 15% of lending is in the form of credit card balances, 53% is in student loans and 32% is personal loans.
“What this suggests is that, as a community, we’ve started to help customers with their lending needs, but we still have so many more customers that do need our help, so in today’s fast-paced financial landscape, the need for effective debt management solutions is more pressing than ever as individuals grapple with increasing financial pressures.
“Debt consolidation has emerged as a real strategic approach to streamline repayments and regain control over personal finances, so among the various options available, second charge finance is gaining traction, offering borrowers a viable pathway to consolidate debt while leveraging the equity in their homes,” he said.
Pedlar noted that second charge would make repayment more manageable and affordable over the term, and this was especially the case for those with a preferential fixed rate on their first charge mortgage who don’t want to lose their rate or pay a hefty ERC.
Second charge could be crucial to green agenda
Pedlar said second charge could also be a useful tool to help customers make energy improvements to their property.
“For us as an intermediary community, the priority should be to try and get as many customers as we can ahead of the green agenda as it moves further into the spotlight,” he said.
He noted that the government estimated that the cost of upgrading ranges from £7,000 to £10,000, and while remortgage was an option, second charge could be a “better option”.
Pedlar explained that not only will they retain their preferential first charge rate and avoid hefty ERCs, they would also be able to qualify for discounted green mortgage rates that offer a cheaper rate for properties with an Energy Performance Certificate (EPC) rating of C or higher.
The Specialist Lending Event continues around the country and will take place in Aston Villa and East Sussex next week.
