Three in four second charge mortgages used for debt consolidation

Evolution Money has reported that 74% of its second charge mortgages have been used for debt consolidation purposes, compared to 26% which have been used by clients with a prime credit rating.

The second charge lending specialist revealed the figures in its Second Charge Mortgage Tracker, which showed that for the last three months, up until the end of May 2021, the split by value was 64% debt consolidation compared to 36% for prime.

Evolution Money analysed data from two different types of its second charge mortgage products, split between borrowers using loans for debt consolidation purposes, and clients who have prime credit ratings.
The latest figures compared to the previous period – between September 2020 and February 2021 – where product split by volume of mortgages was 75% debt consolidation to 25% prime, and by value it was 63% debt consolidation 37% prime.

Evolution Money CEO, Steve Brilus, commented: “Our second iteration of the Evolution Money Second Charge Mortgage Tracker shows some similarities with the first, but also a number of deviations, particularly when it comes to prime borrowers and the likelihood they will use the proceeds from their loans for other purposes beyond debt consolidation.”
The data revealed the most common uses of a debt consolidation second charge mortgage. These were to pay a loan provider (49% – the same level as the previous tracker); to pay a bank (27%, down from 37%); to pay off retail credit (17%, up from 8%); and to pay off car finance (3%, down 5%).
Prime borrowers are typically taking out second charge mortgages again for debt consolidation (43%, down from 59%), home improvement and some consolidation (33%, up from 29%) and home improvement (23%, up from 9%). Borrowers were also utilising second-charge loans to pay for vehicles and to fund existing business ventures.

“There’s still no doubting that the vast majority of both debt consolidation and prime borrowers are using seconds to pay off debts from various sources, but the number of prime customers purely using them for that purpose has dropped from 59% to 43%, while home improvement usage has increased,” Brilus highlighted.

“Understandably, coming out of lockdown has left many homeowners with more debt now than when they entered it. However, with a greater degree of stability and certainty particularly around employment, they are looking to advisers to help them pay off those debts and seconds are increasingly coming onto the radar.”

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