Borrowers with prime credit ratings accounted for an increased share of second charge mortgage lending in the past six months, according to a tracker by Evolution Money.
The lender divided its customer base into two groups – those with prime credit ratings and those with below-prime scores.
It found that in the below-prime borrowers accounted for 75 per cent of second charge lending by volume between September 2020 and February this year, while prime borrowers accounted for 25 per cent.
The share of lending to below-prime borrowers in the previous six months had been 81 per cent, with 19 per cent of loans going to prime applicants
Across both groups, debt consolidation was the most common motivation for borrowing.
Borrowing increased across the board, with prime customers taking an average loan of £35,726, up from £33,242.
Below-prime customers borrowed an average of £20,588, up from £18,019 in the previous six months.
The average LTV for below-prime borrowers was 74.2 per cent, down from 75 per cent and for prime borrowers it was 77.41 per cent, down from 81 per cent.
Prime borrowers consolidated average debts of £26,657, while below-prime borrowers consolidated an average of £15,277.
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Evolution Money chief executive Steve Brilus says: “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.
“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.
“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.
“This data – which will be updated every quarter from now on – does show second-charges may have a much broader appeal, especially to those prime borrowers who are not willing to extricate themselves from a first-charge mortgage especially if it means paying a substantial early repayment charge in order to do so.
“Between the two six-month periods we saw a 40 percent-plus increase in the volume of seconds, and with the market environment as it is, we anticipate further increases particularly as advisers work with more clients with such needs and circumstances.”
By Leah Milner
Source: Mortgage Strategy
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