Second charge mortgages could provide homeowners with short-term financial relief, according to the latest findings from Evolution Money.
The second charge lending specialist has published the latest results from its quarterly data tracker, which reviews borrower types, average mortgage sizes, loan-to-value (LTV), and further information to offer advisers insight into the reasons why a second charge mortgage might be suitable.
In this iteration of the tracker, results mirror the previous quarters findings in terms of both volume and value of second charge mortgages taken by both sets of borrowers, with the number of prime borrowers utilising the products holding steady.
Steve Brilus, CEO of Evolution Money, said: “This latest tracker shows what is happening right across the financial spectrum for many individuals in the UK right now, with pressures from high inflation continuing to bite and the increased cost of first-charge mortgage rates meaning many borrowers are looking for alternatives to straight remortgaging which would undoubtedly cost them more than their existing first-charge.
“Add in the potential for early repayment charges, plus increased costs for other types of borrowing, and it’s not surprising to see homeowners looking at the ways and means by which they can extract equity grown over the last few years, specifically to pay off higher-charging debts, but also to fund other commitments.”
The research showed, that when looking at total lending data for the last three months, up until the end of November 2022, the product split by volume of mortgages is once again 68% debt consolidation/32% prime, and by value 59% debt consolidation/41% prime.
Evolution Money said that while pricing in the first-charge mortgage space had begun to come down off recent post ‘mini budget’ highs, it was still considerably higher than earlier in 2022.
A full first-charge remortgage now in order to secure finance was inevitably going to be at higher rates and monthly mortgage amounts than originally arranged plus may incur an early repayment charge, and the lender added that borrowers were therefore looking at shorter-term alternatives, such as second-charge mortgages, in order to meet shorter-term financial needs.
These new tracker findings continues the trend whereby, for those borrowers specifically using a second-charge mortgage for debt consolidation purposes, the average loan amount had continued to increase, and was now over £25,000.
The average term for these borrowers had also increased again to 135 months, with borrowers seeking longer terms which would make the monthly payments more manageable.
The average LTV was also up, and borrowers continued to consolidate more debts than their prime borrower counterparts, with the average value of debts consolidated also inching up again to £18,322.
For prime borrowers, the average loan has also increased by a sizeable amount to over £37k, with the average term up to 158 months, with the average LTV continuing up at 68%.
Brilus continued: “Average loan amounts have increased for both prime and debt consolidation borrowers, plus the terms have also increased as borrowers seek to make monthly second-charge payments affordable.
“As a result, we are continuing to see prime borrowers looking at their second-charge options and would anticipate this will continue throughout 2023 even if, as anticipated, inflation does start to fall back and there is a corresponding drop in first-charge mortgage rates.”
