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Evolution Money: Prime borrowers completing seconds on the rise

Jessica Bird

September 13, 2021

mortgage product range

The volume of prime borrowers completing second charge mortgages has continued to rise, reaching 32% in the period from June to August 2021, compared with 26% from March to May.

By value, the proportion of prime borrowers completing second charges has dropped, however, from 36% to 34% over the same period.

This is the third iteration of Evolution Money’s quarterly data tracker, which reviews borrower types, average mortgage sizes, loan-to-values (LTVs), and other information to provide insight into the reasons why a second charge mortgage might be suitable for clients.

Evolution Money has analysed 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.

Looking at its total lending data for the last three months, up until the end of August 2021, the product split by volume of mortgages is 68% debt consolidation to 32% prime, and by value 66% debt consolidation to 34% prime.

This is compared to the two previous periods, where the volume of lending to debt consolidation borrowers was higher, but the value lower.

In fact, over the three periods reviewed by the tracker, 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%.

Evolution Money said the Tracker shows a trend whereby there is a growing parity between the volume of second charge lending to prime borrowers, compared to that made to debt consolidation borrowers.

The business put this down to a greater demand amongst existing homeowners to utilise a second charge mortgage for non-debt consolidation purposes.

For those borrowers using a second charge mortgage for debt consolidation purposes, the average loan amount has dipped only slightly to £21,151, with an average term of 126 months, and average LTVs also falling back to 71.8%.

Borrowers, on average, continued to consolidate five specific debts, however the average value of the debts consolidated had increased to £14,626.

Over the past three months, Evolution data has shown the most common uses of a debt consolidation second charge mortgage remained consistent.

More than half were used to pay back a loan provider, followed by paying a bank, repaying retail credit, followed by car finance.

Borrowers also used their second charge mortgage to pay debt collectors, first charge mortgages and utility providers.

For prime borrowers, the average loan amount rose slightly to £33.794, with an average term of 161 months, and an average LTV continuing to fall below 70% to 69%.

Prime borrowers have typically taken out second charge mortgages again for debt consolidation (52%), home improvement and some consolidation (32%) and home improvement (12%).

Borrowers were also utilising second charge loans to pay for vehicles.

The average number of specific debts being consolidated by prime borrowers has remained at five, and the average value of the debt has seen a quarterly increase to £22,366.

Steve Brilus, CEO of Evolution Money, said: “Given this is our third iteration of the Tracker, it’s possible to see some further trends over the period covered, going back almost a year now.

“The volume of lending to prime borrowers continues to grow, and (by volume) we are now close to a third of all our customers being prime.

“As a result, they are able to access keener rates and can merge this with their first-charge mortgage commitments in order to secure the level of borrowing they require.

“That said, the overwhelming reason for either prime, or any other, borrower to take out a second-charge mortgage is still to pay back debt of some kind, however prime borrowers are increasingly likely to want to use some of the money to make improvements to their home.

“Inevitably, there has been a focus on house price values over the last 12 months specifically, as many of the UK house price indices are showing close to double-digit growth.

“Homeowners want to be able to access some of the increased equity this has generated, and we have continued to see strong volumes of business for second-charge mortgages as a result.

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

“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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