Demand for second-charge mortgages has increased for borrowers looking to consolidate their debts, according to Evolution Money’s quarterly data tracker.

The tracker analyses data from two types of second-charge mortgage products, split between those using the loans for debt consolidation purposes only, and those clients with prime credit ratings.

According to the latest data, there has been a slight reversal in previous trends, with both the volume and value of second-charge mortgages increasing for borrowers taking out these products purely for debt consolidation purposes, compared to prime borrowers who are able to use their loans for other purposes.

Looking at the total lending data for the last three months, up until the end of February 2023, the product split by volume of mortgages is 70% debt consolidation versus 30% prime. By value, the split is 61% debt consolidation versus 39% prime.

Evolution Money suggests that this trend towards a greater level of activity among debt consolidation borrowers is due to increased cost of living pressures and the need for many borrowers to pay off costlier debts, which might have been subject to increased interest rates in recent months.

Homeowners are increasingly likely to look at second-charge mortgage options, especially if they do not want to disturb their existing first-charge mortgage, the lender said.

Evolution Money’s data also revealed the most common uses of a debt consolidation second-charge mortgage, with 55% using the money to pay back a loan provider, followed by over 34% paying a bank, and 5% paying off retail credit.

The average debt consolidation loan amount has fallen by close to £1,000, while the average term has increased to 138 months and the average LTV has increased to 70%.

Despite the increase in demand for debt consolidation second-charge mortgages, prime borrowers continue to take out second-charge mortgages for debt consolidation, home improvement, and home improvement with some consolidation.

The average loan for prime borrowers has fallen to just over £36,500 from over £37,000, with the average term also increasing to 164 months, and the average LTV dropping to 66%.

Steve Brilus, CEO of Evolution Money, commented: “Certainly, it has been a busy start to the year and we fully anticipate that seconds will continue to be in demand over the course of 2023 and beyond. Rates look unlikely to come down significantly in the short-term and there is a real possibility they will go up further.”