Evolution Money, the second-charge lending specialist, has launched the latest iteration of its quarterly data tracker, which reviews borrower types, average mortgage sizes, LTV, and a raft of further information which provide advisers with 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 shows an increase in both volume and value for prime borrowers accessing second-charge mortgages.
Prime borrowers are able to use their loans for other purposes, not just debt consolidation, and this iteration shows continued growth in this borrower demographic accessing the products.
| Total Lending | Debt consolidation borrowers | Prime borrowers |
| December 2021 – February 2022 | 73% by volume/63% by value | 27% by volume/37% by value |
| March 2022 – May 2022 | 69% by volume/ 60% by value | 31% by volume/40% by value |
Looking at its total lending data for the last three months, up until the end of May 2022, the product split by volume of mortgages is 69% debt consolidation/31% prime, and by value 60% debt consolidation/40% prime. This is compared to the previous period where both the volume and value of lending to debt consolidation borrowers was higher.
Evolution Money said that prime borrowers continued to use second-charge mortgages in greater numbers through the last three-month period.
One of the reasons put forward was the rise in first-charge mortgage product pricing and interest rates in general, with existing borrowers not willing to remortgage onto poorer-priced mortgages in order to release equity.
Evolution said prime borrowers were increasingly likely to hold onto their existing first-charge mortgage and use a second-charge to fund specific needs, particularly accessing the built-up equity in their homes to pay for home improvements and to pay off debts.
| Debt consolidation borrowers | Prime borrowers | |
| Average loan amount | £24,438 (£22,184) | £36,361 (£34,087) |
| Average term – months | 130 (125) | 153 (153) |
| Average LTV | 70% (72%) | 66.5% (67%) |
| Average no. of debts consolidated | 5 (5) | 5 (5) |
| Average value of debts consolidated | £17,799 (£15,948) | £24,182 (£22,298) |
*Previous figures for December 2021-February 2022 in brackets.
For those borrowers specifically using a second-charge mortgage for debt consolidation purposes, 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 again increased to £17,799.
Evolution data also shows 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, followed by car finance. These were also the top four reasons in the previous three iterations of the Tracker.
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 again for debt consolidation (58.2%, up from 57.5%) home improvement and some consolidation (27.7%, up from 24%) and home improvement (16.8%, up from 15%).
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.
Steve Brilus, CEO of Evolution Money, said: “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.
“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.
“Instead, with a second-charge, they are able to secure the finances they need, which they can then use for a whole range of purposes. As always, paying off other debts is a primary use, but many are also accessing their equity to make further home improvements, to use for business purposes, to purchase cars or indeed to fund a wedding.
“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.
“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.”
