Despite the lingering economic uncertainty that has maintained a tight grip on the UK throughout 2022, second-charge lending has once again seen a bumper year. A minor slowdown in lending volumes was recorded over the past two months, but the overall picture for the year was one of record combined loan values.
According to the latest Secured Loan Index published by Loans Warehouse, total year-on-year second charge lending for 2022 was up by almost 37% in November, coming out at a total of £1.6 billion in loans issued. This marked the sector’s best performance since 2007, even with the figures having been released with two months still to go until the end of the year.
The figures from Loans Warehouse indicated a significant decline in the number of high LTV loans being issued in November, with 85% or higher LTV products accounting for just 13.7% of loans issued. In addition, average loan terms have increased by approximately one year, suggesting that more borrowers are looking to spread the costs of their purchases and projects over a longer period of time to compensate for the escalating living costs crisis.
“The average term of a secured loan has increased by 12 months, potentially linked to lenders’ affordability being stretched more than ever before in recent times,” commented Matt Tristram, managing director of Loans Warehouse.
“Finally, many lenders have significantly improved their completion time, likely a result of a dip in the record-breaking lending levels seen across the summer months.”
What is second-charge borrowing, and how is it used?
Second-charge borrowing refers to a type of loan that is secured against a property that has already been used as collateral for another loan. The term “second charge” refers to the fact that the loan is considered a secondary priority if the borrower defaults on their payments and the lender needs to sell the property to recover their money.
This subsequently means that the original first charge loan on the property (such as a mortgage) would be repaid first in the event of repossession, followed by the second charge loan.
There are countless different uses for second-charge borrowing, which can technically be used for almost any legal purpose. Some of the most popular applications for second-charge products in the UK are as follows:
- Home improvements: One of the most common reasons for taking out a second-charge loan is to fund home improvements. This can include things like renovating a kitchen or bathroom, adding an extension, or updating heating and electrical systems.
- Debt consolidation: Second-charge borrowing can also be used to consolidate multiple debts into one single loan with a lower interest rate. This can be particularly useful for individuals who have multiple credit card debts or other high-interest loans.
- Business use: Some borrowers use second-charge loans to fund business ventures or expansion projects. This can include things like buying new equipment or hiring additional staff.
- Funding education: Second-charge loans can also be used to pay for education-related expenses, such as tuition fees or the cost of relocating to a university.
- Unexpected outgoings: In some cases, individuals may take out a second charge loan to cover unexpected expenses, such as medical bills or car repairs.
It is important to note that while it can be an affordable facility, second-charge borrowing is not suitable for everyone. Lenders typically require borrowers to have a good credit score and sufficient equity in their property to qualify for second-charge loans. Additionally, second-charge loans are generally more expensive than first-charge loans, as the lender is taking on more risk by providing the loan.
However, some secured loan specialists are willing to issue second-charge loans to applicants who do not fulfil the ‘mainstream’ criteria set out by banks in general. For example, you may still be able to qualify for a competitive second-charge loan with poor credit, but you will need to target a specialist lender with your application.