Majority of them take out these mortgages for debt consolidation
Data analysis by second charge lending specialist Evolution Money has shown an increase in both volume and value for prime borrowers accessing second charge mortgages over the last three months.
These borrowers accounted for 31% of its total second charge lending by volume, and 40% by value. These figures are higher compared to the previous quarter, which recorded 27% by volume and 37% by value for prime borrowers.
“Our tracker data continues to show an increase in the use of second charge mortgages by prime borrowers, who in many cases are seeking to use the equity within their properties via a second charge rather than disturb their existing first charge mortgage,” Steve Brilus, chief executive at Evolution Money, said.
“The reasoning behind this is clear, specifically with first charge mortgage pricing having followed the increases in bank base rate recently, and borrowers not willing to remortgage away to a product which may have a higher rate and mean costlier monthly payments.”
Read more: Why brokers should consider a second charge mortgage.
For prime borrowers, the average loan amount has increased to £36,361, with the same average term of 153 months, and an average LTV dipping slightly to 66.5% from 67%.
Prime borrowers are typically taking out these second charge mortgages for debt consolidation (58.2%), home improvement and some consolidation (27.7%) and home improvement (16.8%).
Borrowers were also utilising second charge loans to pay for vehicles, to fund existing business ventures, as well as one borrower who was using the money to pay for a wedding.
The average number of specific debts being consolidated by prime borrowers has remained at five, and the average value of the debt has increased this quarter to £24,182.
Meanwhile, for those borrowers specifically using a second charge mortgage for debt consolidation purposes, data showed that the average loan amount has increased again to £24,438, with a higher average term of 130 months, but with the average LTV falling again to 70%.
Borrowers, on average, continued to consolidate five specific debts, and the average value of the debts consolidated increased to £17,799.
Read more: Second charge lending continues surge.
Evolution data also showed the most common uses of a debt consolidation second charge mortgage. Over half were used to pay back a loan provider, followed by paying a bank, repaying retail credit, and car finance.
“The increase in house prices we have seen over the last two years is also allowing both prime and debt consolidation borrowers to secure average loan amounts higher than in previous iterations of the tracker, and again if borrowers are paying much higher rates of interests on other types of debts, it makes sense to utilise a secured second charge mortgage at a cheaper rate,” Brilus commented.
“This has already been a very strong start to 2022 for the second charge market and given the likely direction of travel for interest rates in the first charge space through the rest of the year, we fully anticipate that both advisers and consumers will continue to see the value available in a second-charge mortgage.”
Evolution Money’s quarterly data tracker, which reviews borrower types, average mortgage sizes, LTV, and a raft of further information, provide advisers with insight into the reasons why a second charge mortgage might be suitable for their clients. The latest iteration covers the period of March to May 2022.
