Debt charities around the UK have raised the alarm as the number of second mortgages reaches the highest level since 2008.
The new data, produced by the Finance and Leasing Association (FLA), demonstrates that second mortgages to the value of £93m were taken out during March, an increase of 22% in comparison to February’s figures. The data indicates that home owners are using the equity in their homes to pay for a variety of things, including paying off debts, home improvements and helping children to fund a deposit for their own home.
According to the FLA, a second charge is a useful product. However, StepChange, a debt charity, didn’t agree, saying that “alarm bells should be ringing”, as borrowing at this high level could leave households in financial difficulty if circumstances change. A second charge is in addition to a mortgage, using the equity in the property as security. The loan is generally obtained from a different lender to the main mortgage, sometimes because the home owner has no other option.
Recent data on consumer spending shows that consumer credit has risen, as households rely on short term loans to pay for furniture, cars and even to pay the rent. Although the general opinion of the FLA is in favour of second charge loans, the head of policy at StepChange, Peter Tutton, said that thousands of families could be effected by life changes, like divorce, redundancy, a slow down of wage growth and rising inflation.
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