Prime borrowers fuel second charge lending increase
Borrowers with prime credit ratings accounted for an increased share of second-charge lending in the past six months, according to new tracker data by Evolution Money.
The company’s analysis looking at its total lending data for the last six months, up until the end of February 2021, found that the product split by volume of mortgages is 75% debt consolidation/25% prime, and by value 63% debt consolidation/37% prime.
This is compared to the previous six-month period where product split by volume of mortgages was 81% debt consolidation/19% prime, and by value 69% debt consolidation/31% prime.
For those borrowers specifically using a second-charge mortgage for debt consolidation purposes, the average loan amount is just over £20.5k with an average term of 131 months and an average LTV of 74.2%. Borrowers, on average, consolidated five specific debts, with the average value of the debts consolidated being just over £15.2k.
Over the last six months, Evolution data shows the most common uses of a debt consolidation second-charge mortgage was to: pay a loan provider (49%); pay a bank (37%); pay off retail credit (8%); and pay off car finance (5%). Borrowers also used their second-charge mortgage to pay county court judgements, debt collectors, first-charge mortgages and utility providers.
For prime borrowers, the average loan amount is £35.7k with an average term of 166 months and an average LTV of 77.4%.
Prime borrowers are typically taking out these second-charge mortgages again for debt consolidation (59%), home improvement and some consolidation (29%) and home improvement (9%). The average number of specific debts being consolidated by prime borrowers was six, and the average value of the debt was over £26.6k.
Steve Brilus, CEO of Evolution Money, said “In terms of our overall product split over the last year, we have seen a notable uptick in both the volume and the value of second-charges being taken out by those customers with prime credit ratings. However, what tends to remain unchanged is the reasons why customers require a second-charge mortgage; this tends to focus on the debt consolidation opportunities it provides, although it’s also been clear through the pandemic period that borrowers also want to use their funding to make home improvements alongside paying off other debts.”
“The increase in prime borrowers shows there is a distinct and growing customer demographic who may well have a mortgage need but are unwilling or unable to remortgage their first-charge product in order to secure their funds. As you might expect, the average loan amount for prime borrowers is higher and their uses for the money more varied, although we are still seeing most customers taking the opportunity to consolidate and pay off debts, with many also use the cash to improve their existing properties.”
“This data – which will be updated every quarter from now on – does show second-charges may have a much broader appeal, especially to those prime borrowers who are not willing to extricate themselves from a first-charge mortgage especially if it means paying a substantial ERC in order to do so.”
“Between the two six-month periods we saw a 40%-plus increase in the volume of seconds, and with the market environment as it is, we anticipate further increases particularly as advisers work with more clients with such needs and circumstances.”