Homeowner loans, often referred to as second charge mortgages, are growing in popularity, new research shows.
Analysis of official data from the Bank of England and Finance & Leasing Association reveals that second charge mortgage lending to UK consumers grew 17% year-on-year in H1 2024.
As a result, second charge mortgages recorded the fastest growth rate of any market segment, beating the 13% growth in first-time buyer lending and 5% growth in further advances. All other market segments saw a year-on-year decline in lending activity between January and June 2024.
With homeowners accessing £804m of equity between January and June, second charge mortgages were responsible for more than 10x the lending activity seen in the buy-to-let (BTL) market (£804m vs. £76m).
Pepper Money, which conducted the analysis, says that alongside typical uses such as debt consolidation and home improvements, customers using homeowner loans for paying tax bills and funding deposits for buy to let homes.
The analysis shows the same growth trend has played out over both a two-year and five-year timeframe. Comparing back to H1 2019, the year before the Covid-19 pandemic struck, lending via second charge mortgages has grown at twice the rate (28%) of any other segment over the intervening years.
First-time buyer lending again is the nearest challenger but trails behind in second with a 13% post pandemic growth rate.
Second charge mortgages also stand out as the only segment of the mortgage market which performed stronger in H1 2024 than it did during H1 2022, before the infamous Autumn ‘mini-Budget’ during the Liz Truss administration shook up the UK economy and helped prompt a steep rise in interest rates.
Since the pandemic subsided, homeowners have accessed £3.2 billion via second charge mortgages over the last 10 quarters, up until Q2 2024. This is 27% higher than the £2.9 billion of lending during the equivalent period before the pandemic.
Homeowner loans allow customers to access the equity locked up in their homes without impacting their existing mortgage rate. As a source of capital for home improvement projects or to consolidate debts, they offer an alternative to credit cards or personal loans. Rates are typically lower, funds can be repaid over a longer period of time and customers can make unlimited overpayments.
A spokesperson for Pepper Money says: “Without doubt, there are too many people who only think of personal loans or credit cards who might benefit from carefully considering whether a homeowner loan could be a better fit for their needs.
“It’s vitally important we tackle this awareness gap, because otherwise customers will keep taking non-advised, unsecured products when they might be better served, and better off as a result, by at least considering their options more broadly and seeking advice about a secured homeowner loan.
“Bricks and mortar are an untapped resource when it comes to helping UK households pursue their financial ambitions. Second charge mortgages are steadily coming into their own in the post-pandemic landscape and we fully expect this trend to continue.”
