Second-charge lending specialist, Evolution Money has launched the third iteration of its quarterly data tracker, which reviews borrower types, average mortgage sizes, LTV, and other information to give advisers insight into the reasons why a second charge mortgage might be suitable for their clients.
Evolution Money analyses data from two different types of its second-charge mortgage products, split between those borrowers using the loans for debt consolidation purposes, and those clients who have prime credit ratings.
This version of the tracker continues to show a more even picture in terms of the volume and value of second-charge loans being taken by both types of borrowers. The Tracker compares both these product areas:
| Total Lending | Debt consolidation borrowers | Prime borrowers |
| June 2021 – August 2021 | 68% by volume/ 66% by value | 32% by volume/ 34% by value |
| March 2021 – May 2021 | 74% by volume/ 64% by value | 26% by volume/ 36% by value |
| September 2020 – February 2021 | 75% by volume/ 63% by value | 25% by volume/ 37% by value |
Looking at its total lending data for the last three months, up until the end of August 2021, the product split by volume of mortgages is 68% debt consolidation/32% prime, and by value 66% debt consolidation/34% prime.
This is compared to the two previous periods where the volume of lending to debt consolidation borrowers was higher, but the value lower. In fact, over the three periods reviewed by the Tracker, the volume of mortgage lending to prime borrowers has increased by 7%, with the value falling by 3%; while the volume of mortgage lending to debt consolidation borrowers has fallen by 5% but the value increased by 3%.
Evolution Money says the Tracker shows a trend whereby there is a growing parity between the volume of second-charge lending to prime borrowers, compared to that made to debt consolidation borrowers. It puts this down to a greater demand amongst existing homeowners to utilise a second-charge mortgage for non-debt consolidation purposes.
| Debt consolidation borrowers | Prime borrowers | |
| Average loan amount | £21,151 (£21,290) | £33,794 (£33,650) |
| Average term – months | 126 (125) | 161 (157) |
| Average LTV | 71.8% (72.4%) | 69% (69.35%) |
| Average no. of debts consolidated | 5 (5) | 5 (5) |
| Average value of debts consolidated | £14,626 (£14,368) | £22,366 (£20, 447) |
*Previous figures for March 2021-May 2021 in brackets.
For those borrowers specifically using a second-charge mortgage for debt consolidation purposes, the average loan amount has dipped only slightly to £21,151, with an average term of 126 months, and average LTV also falling back to 71.8%. Borrowers, on average, continued to consolidate five specific debts, however the average value of the debts consolidated had increased to £14,626.
Over the last three months, Evolution data shows the most common uses of a debt consolidation second-charge mortgage remained consistent. Over half were used to pay back a loan provider, followed by paying a bank, repaying retail credit, followed by car finance. Borrowers also used their second-charge mortgage to pay debt collectors, first-charge mortgages and utility providers.
For prime borrowers, the average loan amount has inched up to £33.794, with an average term of 161 months, and an average LTV continuing to fall below 70% to 69%
Prime borrowers are typically taking out these second-charge mortgages again for debt consolidation (52%), home improvement and some consolidation (32%) and home improvement (12%). Borrowers were also utilising second-charge loans to pay for vehicles. The average number of specific debts being consolidated by prime borrowers has remained at five, and the average value of the debt has seen a quarterly increase to £22,366.
Steve Brilus, CEO of Evolution Money, said: “Given this is our third iteration of the Tracker, it’s possible to see some further trends over the period covered, going back almost a year now. The volume of lending to prime borrowers continues to grow, and (by volume) we are now close to a third of all our customers being prime. As a result, they are able to access keener rates and can merge this with their first-charge mortgage commitments in order to secure the level of borrowing they require.
“That 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.
“We anticipate this move towards prime borrowers will continue, particularly in an environment where demand for housing is strong, but supply is still 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.
“To that end, and so as not to disturb an existing first-charge or pay an existing early repayment charge, they are increasingly likely to be suitable for a second-charge product. Not forgetting the speed of turnaround for such mortgages and the ability to get the necessary money to them far quicker than with a remortgage or product transfer.
“Add in the ongoing needs to pay off debt accrued during the pandemic and lockdown, and you can see why second-charges need to be considered by advisers in a full review of all refinance options available to the homeowner.”
