Interest charge

Prime borrowers using second charge increased in Q1 – Evolution Money

Evolution Money’s latest quarterly data tracker was found between March and May. Primary borrowers accounted for 31% of its total second-load loans by volume and 40% by value.

This compares to 27% in volume and 37% in value in the previous quarter.

The report says the rise could be due to higher prices for prime mortgage products and interest rates, and existing borrowers unwilling to remortgage on poorer deals to free up equity.

He added that primary borrowers were more likely to keep their existing first charge and then use a second charge to finance specific things, such as home renovations or paying off debt.

The report adds that the average loan size for a primary borrower has fallen from £34,087 in the previous quarter to £36,361 now.

Average loan to value (LTV) for prime borrowers was 66.5%, down from 67% in the prior quarter.

The average duration of prime borrowers remained stable at 153 and the average number of consolidated debts at five.

The average value of debt consolidated by primary borrowers was £24,182, down from £22,298 in the previous quarter.

The report said primary borrowers were taking extra charges for debt consolidation, home improvement, and some consolidation or only home improvement.

Other uses included paying for vehicles, financing existing business ventures, or paying for a wedding.

Debt Consolidation Borrowers

The report says debt consolidation borrowers accounted for 69% of its total second-charge loan volume and 60% of its value.

This compares to 73% of total second-load loan volume in the prior quarter and 60% of value.

He added that the average loan size for debt consolidation borrowers was £24,2438, up from £22,184 in the previous quarter.

The average duration slightly lengthened to 130 months, against 125 in the previous quarter.

The average value of consolidated debt also increased from £15,948 in the previous quarter to £17,799 in the current quarter.

Some of the most common uses for the loan were to pay off a lender, retail credit, or car financing.

“Good start” for 2022

Steve Brilus, managing director of Evolution Money, said the reasoning for more primary borrowers to use second fees was clear, pointing to increases in the Bank of England‘s base rate and borrowers not wanting to remortgage on a more expensive product.

He explained: “Instead, with a second charge, they are able to secure the finances they need, which they can then use for various purposes. As always, paying off other debts is a primary use, but many also access their capital to make other home improvements, to use for business purposes, to buy cars, or even to fund a wedding.

Brilus said increases in house prices over the past two years have allowed prime and debt consolidation borrowers to obtain higher average loan amounts than seen in previous trackers.

He added that if borrowers were paying higher interest rates on other debts, it made sense to use a second charge to get a cheaper rate.

“It has already been a very strong start to 2022 for the second load market and given the likely direction of interest rates in the first load space throughout the year, we fully expect advisors and consumers will continue to see the value available in a second mortgage,” he added.