More prime borrowers are taking second-tier loans: Evolution

According to Evolution Money’s quarterly tracker, more prime borrowers are taking out second mortgages.

It says the split of second-load proceeds by mortgage volume is 73% for traditional debt consolidation borrowers, compared to 27% for primary borrowers in the three months to the end of February.

By value, the spill was 63% of debt from consolidation borrowers and 37% from primary borrowers.

The second charge lender’s report states: “Activity among primary borrowers was increasing, suggesting that existing homeowners are more willing to use second charge options, for example, to complete home renovations and pay off larger debts. expensive.”

For borrowers specifically using a second mortgage for debt consolidation purposes, the average loan size increased again to £22,184, with an average term of 125 months, but with the average loan value slightly down. down to 72%.

Borrowers, on average, continued to consolidate five specific debts, and the average value of consolidated debts increased again to £15,958.

The data shows the most common uses for a debt consolidation second mortgage. It says more than half was used to repay a loan provider, followed by a bank payment, retail credit repayment, followed by car financing.

He adds that for prime borrowers, the average loan size over the period fell slightly to £34,087, with an average term of 153 months, and average LTV “falling quite significantly” to 67% from 72%.

Primary borrowers typically take out these second mortgages for debt consolidation – 57.5%, vs. 55% – home improvement and some consolidation – 24%, vs. 23% – and home improvement – ​​15%, down from 18%.

The survey adds that borrowers were also using second charge loans to pay for vehicles and finance existing business ventures. The average number of specific debts consolidated by primary borrowers remained at five, and the average value of debt fell this quarter to £22,298.

Evolution Money Managing Director Steve Brilus said: “Our latest tracker seems to go back to those from a few quarters ago when we started to see a noticeable trend in terms of more borrowers principals using second mortgages for other uses beyond typical debt consolidation.

“With existing homeowners locked into very favorable mortgage agreements, there is little inclination to re-mortgage these products, particularly when the price is no longer as good and they are likely to have to pay considerable prepayment charges for the make.

“Instead, for existing owners who want to access their equity for all sorts of purposes, a second charge might be the best option, especially given the changing criteria, greater flexibility and larger loans now available.

“Without a doubt, the primary purpose of a second charge tends to remain paying off debts, but we are seeing more prime borrowers using their loans in different ways, often to improve their homes and pay off larger debts. expensive at the same time, such as credit cards and car financing.

“The latest figures from the Finance & Leasing Association for the three-month period to the end of January this year show that the value of second mortgages has increased by 52% compared to the same period a year ago. year.

This is a significant increase and details the growth in demand for aftermarket products and the growing range of solutions they offer existing homeowners, particularly in the wake of rising home prices.

“We fully anticipate that second mortgages will become even more relevant to more homeowners, and advisors are much more likely to see clients for whom a second loan is suitable.

Prime mortgage rates have risen in recent months, and further rises are expected, while many homeowners may feel that now is the time to pay down their debts, especially if, at the same time, they are also seeing the cost of life arise.”

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