"Second charge mortgages are steadily coming into their own in the post-pandemic landscape and we fully expect this trend to continue."
- Ryan McGrath, director of second charge mortgages at Pepper Money
Second charge mortgages are setting the pace for growth in the UK mortgage market, seeing 10x more lending than buy-to-let during H1 2024, according to new research by Pepper Money.
Analysis of official data from the Bank of England and Finance & Leasing Association (FLA) 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 £76m of lending activity seen in the individual buy-to-let market (including lending to individuals and unincorporated businesses but excluding limited companies).
Alongside typical uses such as debt consolidation and home improvements, Pepper’s data shows that customers used homeowner loans for paying tax bills and some are also using their homeowner equity to fund 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, 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 the UK economy and helped prompt a steep rise in interest rates.
Since the pandemic subsided, homeowners have accessed £3.2bn via second charge mortgages over the last 10 quarters, up until Q2 2024. This is 27% higher than the £2.9bn of lending during the equivalent period before the pandemic.
Ryan McGrath, director of second charge mortgages at Pepper Money, commented: "Make no mistake, taking out a homeowner loan is still a niche pursuit, but we’re starting to see this change as customers realise the financial firepower they have stored away in bricks and mortars.
“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.”
