These loans are mainly used for debt consolidation (58.1%), home improvements (11.1%), or both (22.9%). 

I’d like to explore three major factors that may explain this rise: changes in economic circumstances, spending behaviour, and attitudes towards the home. 

Economic factors – driving the need for specialist finance 

The September 2022 mini Budget rocked the mortgage industry, leading to drastic rate increases. Some homeowners are still on a low five-year fixed term secured prior to this.

Thus, for many homeowners, remortgaging at higher rates hasn’t been a viable option for releasing equity. For others, economic turmoil has meant they don’t meet revised affordability tests. 

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The ensuing cost-of-living crisis led consumers to turn to credit facilities more frequently, causing a rise in loan defaults, which excludes existing homeowners from secured loan options on the high street. 

As a result, homeowners have been turning to specialist lenders for secured loans they would not be able to access otherwise. 

Changes in spending behaviour – driving debt levels 

The past decade has seen significant changes in consumer attitudes toward spending.

The accessibility and convenience of online shopping, paired with the growing number of delivery services and shopping platforms, means people are spending online more frequently. This is coupled with higher cart values, less friction compared to in-store retail, and frequent credit card use. 

Alternative credit options like buy now, pay later (BNPL) schemes have skyrocketed in popularity. While providing instant ownership and interest-free credit, many ignore the inherent risks of late payment. 

Additional trends impacting spending behaviour include the rise of the subscription economy, micro-transactions, hyper-targeted marketing, influencer-driven product and lifestyle choices, and a growing desire to purchase sustainable products, albeit pricier. 

These factors erode disposable income and drive up high-interest unsecured debt, prompting consumers to seek options to manage it. Many have found that second charges provide this option. 

Changes in attitudes towards the home – driving home renovations 

The pandemic’s lasting impact on work and living patterns means people are spending significantly more time at home. Homeowners are therefore increasingly aware of the home defects that impact the enjoyment of their living space and day-to-day living.

Survey research from Aviva suggests that seven million UK homeowners plan renovations over the next two years, with an average budget of £14,000, and over half of them plan to improve home aesthetics. Second charges can help release equity for these renovations. 

How this impacts brokers 

As demand for secured lending grows, second charge mortgages are becoming increasingly relevant. However, this growth has also led to increased competition in the market and, as a result, brokers may not notice an influx of new second charge business. 

Brokers will need to compete on service levels while being more attuned to the needs of homeowners, identifying when second charges are the right solution. Strong partnerships and the expertise of packagers like Aria are key to ensuring deals are processed efficiently.