Evolution Money, the second-charge lending specialist, has published the latest results from its quarterly data tracker, which reviews borrower types, average mortgage sizes, LTV, and other data to offer 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 second-charge mortgage products, split between those borrowers using the loans for debt consolidation purposes only, and those clients who have prime credit ratings.
This version of the tracker shows another quarterly increase in both the volume and value of second-charge mortgages taken by prime borrowers. Prime borrowers are able to use their loans for other purposes, not just debt consolidation, and this iteration continues to show an ongoing theme – continued growth in this borrower demographic accessing the products.
Looking at its total lending data for the last three months, up until the end of August 2022, the product split by volume of mortgages is 68% debt consolidation/32% prime, and by value 59% debt consolidation/41% prime. This is compared to the previous quarter where both the volume and value of lending to debt consolidation borrowers was 1% higher.
Evolution Money said the market for second-charge borrowing had continued to strengthen over the last quarter, boosted by a continuing demand from homeowners to access housing equity and an increase in interest rate pricing for first-charge mortgages which had seen borrowers looking elsewhere for finance alternatives.
The lender said that, while pricing had also risen in the second-charge space, borrowers were not willing to pay large early repayment charges on their first-charge products in order to remortgage, especially as they were likely to be moving to a higher rate. Instead, borrowers were looking for shorter-term solutions that could allow them to access increased equity built up over the past few years.
This iteration of the Tracker shows that, for those borrowers specifically using a second-charge mortgage for debt consolidation purposes, the average loan amount had continued to increase, from £24,438 up to just below £25,000.
The average term for these borrowers had also increased to 131 months, however the average LTV had fallen again to 68%. Borrowers, on average, were consolidating an increasing number of specific debts up to six from five last quarter, and the average value of the debts consolidated had also increased to £18,306.
Evolution data also shows the most common uses of a debt consolidation second-charge mortgage. Over 60% were used to pay back a loan provider, followed by over 40% paying a bank, with close to 9% repaying retail credit, followed by car finance at just over 5%. These were also the top four reasons in the previous four iterations of the Tracker.
For prime borrowers, the average loan amount has also increased but only slightly to £36,377, with the average term also having increased to 154 months, with the average LTV continuing to fall to 66% from 66.5%.
Prime borrowers are increasingly taking out second-charge mortgages for debt consolidation (up to 63% from 58.2%), home improvement and some consolidation (26.5%, down from 27.7%) and home improvement (21%, up from 16.8%).
Borrowers were also utilising second-charge loans to pay for vehicles, to pay for weddings, and to fund existing business loans and ventures. The average number of specific debts being consolidated by prime borrowers remained at five, however the average value of the debt had continued to increase, this quarter up to £24,732.
Steve Brilus, CEO of Evolution Money, said: “In this iteration of the Tracker, it’s possible to see some ongoing changes which potentially reflect the shifting nature of the UK economy, particularly in terms of meeting the cost of living increases, and utilising increased equity in order to pay off, and consolidate debts, in anticipation of inflation rising even further.
“It may well be that we see the greater impact of such issues in the next Tracker, specifically because of the cost of living changes and how borrowers seek to approach this going forward. This may well result in some significant changes to the results.
“At the moment however, 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.
“Instead, borrowers are sitting put and, with their advisers, are looking for alternatives which obviously brings them into contact with the seconds market, which can offer a shorter-term option. 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.
“Interestingly, our average loan amount is up for both prime and debt consolidation borrowers, as is the average amount of the consolidated debts they are paying off. 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.
“Overall, paying off debts, loans, finance providers continues to be the core use for a second-charge, although we’ve seen customers paying off car finance as well as three applicants who used the money to fund weddings during the summer months.
“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.”
