Debt Consolidation Drives Second Mortgage Growth
The second mortgage market has seen continued growth with a monthly increase of 54% in April, an increase of 83% over the previous year.
Monthly figures released by the Finance & Leasing Association (FLA) showed the value of new business reached £127 million in April this year, with 2,802 new deals.
Of these, 53% were for consolidating existing loans, 16% for home improvement, and 25% for both loan consolidation and home improvement.
Freedom Finance Chief Commercial Officer Andrew Fisher said he expects to see this continued growth accelerate throughout the year as the current economic environment may cause people to capitalize on equity. real estate following the surge in property prices during the pandemic.
“This has allowed more homeowners to turn to second mortgages as a way to use the value of their property for other purposes. For example, they can now use second mortgages to fund home improvements like installing a home office, improving the insulation of the property, or installing more energy sources. green like solar panels.
“As the cost of borrowing rises and household budgets are tight, debt consolidation is likely to be another major theme in the current inflationary shock, and second mortgages may be a timely and favorable to erase or reduce existing debts.
Fisher added: “Given the recent rise in interest rates and potential further hikes by the Bank of England, those with longer term solutions may be reluctant to remortgage given that they would likely move to a more expensive rate and could also face a high prepayment charge – second mortgage loans meet the needs of these customers very effectively. »
A financial adviser at Spellman Financial Services, Luke Spellman said he had seen a large number of candidates looking to free up equity in recent months, with notable reasons being debt consolidation and home improvements which, in his view. opinion, go hand in hand with the rising cost of living. ”.
Spellman said: “The reason applicants are likely to turn to second mortgages instead of new advances from their existing lender could be because applicants don’t meet affordability or credit criteria with their existing lender.”
Earlier this month (June 2022), LV released figures showing that 12% of pensioners had outstanding mortgage debt when they retired, while a third of mortgage holders don’t think that they will have paid off their mortgage at age 65.