Not time to bury heads in the sand

Kerri Pender, operations director at Evolution Money, discusses how life’s up and mean homeowners, just like non-homeowners, can find themselves in a less than perfect financial situation and how many could benefit from a second charge.

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Kerri Pender | Evolution Money
17th November 2022
Kerri Pender Evolution Money
"It’s important homeowners are aware of their options and it’s also the role of advisers to help homeowners who may benefit from a second charge."

As homeowners continue to experience increasing costs across the board, it will come as no surprise to hear we at Evolution are seeing a rise in second charge debt consolidation mortgages.

What will perhaps be more surprising is the amount borrowers are saving - with the average homeowner cutting around £400 a month from their outgoings through consolidating their unsecured debt.

Such a saving would be hugely beneficial in normal circumstances but at a time of rising inflation and record energy bills, an extra £400 a month has the potential to stop a borrower falling into arrears or significantly improve their standard of living.

There can be the false perception that homeowners are less affected by mounting debt, with a sense that due to homeownership they are perhaps more financially astute and less likely to find themselves in significant debt.

Life’s up and downs however mean homeowners, just like non-homeowners, can find themselves in a less than perfect financial situation.

Recent research by debt firm, Creditfix, found the average level of unsecured debt among homeowners is almost £29,000 - 78% higher than the average among non-homeowners. This is even more pronounced in younger homeowners, where the average level of personal debt for people aged 18-29 is just over £23,000 - 83% higher than non-homeowners.

This could perhaps be explained by the higher mortgage costs facing newer homeowners, either due to a higher LTV mortgage rate or additional borrowing to cover moving-in costs.

As the Bank of England’s base rate continues to rise, mortgage payments have the potential to take up an even greater slice of homeowner’s income, which could potentially further increase their reliance on debt.

While homeowners may still be meeting their mortgage payments, they may be falling behind with other payments and as such not qualify for a debt consolidation remortgage, nor wish to disturb a competitive mortgage rate.

The homeowner may have got themselves into a temporarily bad financial position and accumulated some loan or credit card arrears.

They may now be in a better position to manage their finances having started a new job or cut their expenditure. It may be they would benefit from a second charge in order to help them reduce their monthly outgoings and get their finances back on track.

It’s important homeowners are aware of their options and it’s also the role of advisers to help homeowners who may benefit from a second charge. Now is not the time for homeowners to bury their heads in the sand and the sooner they take charge of their finances, the better.

Recent research from cybersecurity firm, NordVPN, found more than half of Brits – 52.2% - are afraid to check their bank statements for fear of what they might find. That’s the equivalent of 26.8 million borrowers.

As warnings echo in the media over the potential for rising arrears and possessions among homeowners, it’s crucial advisers are in a position to help borrowers and make them aware of their options – such as a second-charge.

Debt consolidation has always been a feature of the second charge mortgage market and as the sector continues to grow, we could see a further increase in those who meet the requirements for one, as borrowers struggle to meet their growing bills and look for ways to manage their situation.

The latest figures from master broker, Loans Warehouse, shows second charge lending reached £150.2 million in October 2022. It marks a 36% year-on-year rise on the same period last year and represents the equal fifth-best lending month of 2022.

These figures show debt consolidation loans accounted for 42.3% of all second charge lending during October. Given we are still at the start of the cost-of-living crisis, we should expect to see this proportion increase further still.

Advisers and lenders like ourselves are increasingly in a position to help borrowers and make a positive difference to their financial situation in the coming months.

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