Evolution Money: The second load of debt consolidation increases
According to quarterly Evolution Money data tracking, second-load products, both in volume and value, are more likely to be required by debt consolidation borrowers than primary borrowers.
Looking at its total lending data for the past three months, through November 2021, the product split by mortgage volume is 77% debt consolidation/23% prime, and by value 67% debt consolidation/33% prime rate.
In the previous two quarters covered by the tracker, lending volume to prime borrowers was about 10% higher than this quarter, and there was a more even split between debt consolidation and prime. .
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For borrowers specifically using a second mortgage for debt consolidation purposes, the average loan size increased slightly to £21,448, with an average term of 123 months, and the average loan-to-value (LTV) ratio also increases to 73.9%.
Borrowers, on average, continued to consolidate five specific debts, but the average value of consolidated debts rose to £15,358.
For prime borrowers, the average loan size also increased to £35,215, with an average term of 153 months, and average LTV also rising from 69% to 72%.
Primary borrowers typically re-obtain these second mortgages for debt consolidation (55%), home improvement and some consolidation (23%) and home improvement (18%) .
Borrowers also used second lien 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 increased again to £23,160.
Steve Brilus, Managing Director of Evolution Money, said: “Secondary charge products have always been used by owners for debt consolidation purposes, but in previous iterations of the tracker we were starting to see an increasing number of ‘primary borrowers use seconds for purposes that were not solely intended to pay off debts.
“This time around however, it is clear that there has been a comeback in favor of debt consolidation and this will likely be fueled by data from a period when government support was removed, particularly in regarding furloughs, and the fact that many people who had accumulated debt during the pandemic were looking for solutions to pay off these more expensive debts.
“That may be why we have seen an increase in both the amount of loans and the average value of debt consolidated by debt consolidation and primary borrowers, and why LTVs have increased.
“We should not underestimate the benefits that debt consolidation can offer and with second charge rates likely to be much lower than many other forms of debt, it makes perfect sense that some homeowners take on a second charge and repay their dearest. debts first.
“It is likely that as we approach 2022, debt consolidation will remain the main reason for taking out a second mortgage, but we should not exclude more prime borrowers in need of these products, especially if they have been able to secure a competitive ultra-first rate mortgage over the last 12 months, but still find themselves needing to access additional equity.
“2021 has been a very strong year for the seconds market, and we certainly expect 2022 to be the same. This is a growing area of the market where advisors should be active in helping clients with these specific requirements.