Mortgages  

Second charge shifts to home improvement loans

Second charge shifts to home improvement loans

In the first eight months of this year around one in three second charge loans were taken out for home improvements, highlighting the shifting reason for opting for this type of loan, data from V Loans shows.

There has been a move away from debt consolidation as the market opens up to new customers, according to the lender.

Between January and August analysis of second charge loan purposes showed 33 per cent were used for home improvements compared with just 17 per cent in the same period in 2014 of V Loans around 2,000 customers.

However, the reverse applied to debt consolidation, with 75 per cent of customers using second charge for debt consolidation in 2014 compared with 36 per cent of customers in 2016.

Data revealed increased use of second charge for property purchases and mortgages.

A total of 13 per cent of customers used them for those purposes in 2016 compared with just 2 per cent in 2014.

This was reflected in average loan sizes increasing 83 per cent to £67,301 from £36,742 in 2014.

According to V Loans, the data underlines how the market has changed following the implementation of the Mortgage Credit Directive in March, with customers and brokers increasingly realising how second charges can replace remortgages.

Marie Grundy, managing director of V Loans, said: “The switch from debt consolidation to home improvement has been dramatic over the past two years and our own loan book demonstrates how the market is changing.

“It is particularly interesting to see the change in views among brokers about borrowers who can benefit from a second charge such as customers who do not want to lose fixed or tracker deals by remortgaging as well as interest only customers and people facing early redemption charges.

“The Mortgage Credit Directive has sped up the process by removing cooling off periods and because a solicitor is not required for most second charge transactions this not only helps with the speed of transactions but reduces costs.”

The table below shows the change in loan purpose shares between 2014 and 2016 across V Loans business.

LOAN PURPOSEJANUARY TO AUGUST 2014 SHAREJANUARY TO AUGUST 2016 SHARE
Debt consolidation75%36%
Home improvements17%33%
Business purposes3%6%
Other3%10%
Property purchase

2%

12%
Car1%1%
Mortgage

Zero

1%
Personal purposes

Zero

1%

Source: V Loans

ruth.gillbe@ft.com