Evolution Money has reported a drop in the number of borrowers using second charge mortgages for debt consolidation purposes.

The second charge lending specialist was announcing the launch of a new quarterly tracker for its data, designed to outline borrower types, average mortgage sizes and LTVs to help advisers understand why a second charge mortgage might be suitable for their clients.

Evolution Money offers two different types of second charge mortgage product, split between borrowers using the loans for debt consolidation purposes, as well as those who have prime credit ratings.

Looking at its total lending data for the last six months – up until the end of February 2021 – data revealed the product split by volume of mortgages was 75% debt consolidation to 25% prime, and by value it was split 63% debt consolidation to 37% prime.
 
This is compared to the previous six-month period – between March and August 2020 – when the product split by volume of mortgages was 81% debt consolidation to 19% prime, and by value it was 69% debt consolidation to 31% prime.

“In terms of our overall product split over the last year, we have seen a notable uptick in both the volume and the value of second charges being taken out by those customers with prime credit ratings,” commented Evolution Money CEO, Steve Brilus.

“However, what tends to remain unchanged is the reasons why customers require a second charge mortgage; this tends to focus on the debt consolidation opportunities it provides, although it’s also been clear through the pandemic period that borrowers also want to use their funding to make home improvements alongside paying off other debts.

“The increase in prime borrowers shows there is a distinct and growing customer demographic who may well have a mortgage need but are unwilling or unable to remortgage their first charge product in order to secure their funds.”

Evolution Money’s data also showed that for borrowers using a second charge mortgage specifically for debt consolidation purposes, the average loan amount was just over £20,500 with an average term of 131 months, and an average LTV of 74.2%.

By contrast for prime borrowers over the same period between September 2020 and February 2021, the average loan amount was £35,700 with an average term of 166 months, and an average LTV of 77.4%.

“As you might expect, the average loan amount for prime borrowers is higher and their uses for the money more varied, although we are still seeing most customers taking the opportunity to consolidate and pay off debts, with many also use the cash to improve their existing properties,” Brilus added.

“Between the two six-month periods we saw a 40%-plus increase in the volume of second charges, and with the market environment as it is, we anticipate further increases particularly as advisers work with more clients with such needs and circumstances.”

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