Shift in number of prime borrowers using second charge mortgages

The three months to the end of August have seen a rise in the volume of second charge mortgage lending to borrowers with prime credit ratings, according to new research published by Evolution Money.

The secured loan lender revealed that this period registered 68% of borrowers using second mortgage products who have prime credit ratings, compared to 32% of borrowers using loans for debt consolidation purposes.

Evolution Money analysed data from two different types of its second charge mortgage products, split between borrowers using the loans for debt consolidation, and clients who have prime credit ratings. The research reviewed borrower types, average mortgage sizes, LTV, as well as other information which to advisers insight into why a second charge mortgage might be suitable for their clients.

Despite the rise in prime borrowers using second charge mortgages, however, Evolution Money’s findings showed that by the value of the loans, the split was 66% in favour of debt consolidation, and 34% prime borrowers.
 
This is compared to the two previous three-month periods where the volume of lending to debt consolidation borrowers was higher, but the value lower. Over the three periods reviewed so far by Evolution Money, 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%.
 
The secured loan lender said that its research reveals a trend of a growing parity between the volume of second charge lending to prime borrowers, compared to that made to debt consolidation borrowers. Evolution Money CEO, Steve Brilus, put this down to a greater demand amongst existing homeowners to utilise a second charge mortgage for non-debt consolidation purposes.

“We anticipate this move towards prime borrowers will continue, particularly in an environment where demand for housing is strong, but supply is still low,” Brilus said.

“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.”

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