Research reveals shift towards alternative borrowing
The proportion of homeowners intending to use their mortgage to finance significant purchases is set to drop sharply, according to new research from Pepper Money.
While 33% of homeowners have previously used their mortgage for major spending, only 18% say they would consider this option in the future. This decline reflects changing attitudes amid a higher interest rate environment.
“Although mortgage rates have started to ease from the recent peak, they remain higher than what homeowners have experienced over the past five years,” said Ryan McGrath (pictured top), director of second charge mortgages at Pepper Money. “As a result, fewer are planning to use their first charge mortgage for major purchases in today's economic environment. Remortgaging was more attractive when rates were lower, but now many prefer to hold on to the fixed rates they secured previously.”
The research suggests that the predictability of monthly payments is a growing priority. As interest rates remain elevated compared to the past five years, homeowners are increasingly cautious about taking on additional mortgage debt that could disrupt their current repayment schedules.
Alternative forms of borrowing are also gaining ground. The study found that a quarter of homeowners would now consider a personal loan for major purchases, while around one in six would opt for a secured loan. This movement towards other types of credit indicates a shift in how homeowners approach funding for large expenses, with many seeking to avoid the long-term commitment and potential costs associated with remortgaging.
“We’re seeing a rise in alternative finance options, such as second charge mortgages,” McGrath added. “Our data shows 17% of homeowners would consider using a second charge mortgage for future significant purchases, up from 14% who have used this option in the past.
“While credit cards and savings are still the most commonly used options, there’s a noticeable shift happening. The fact that 63% have used a credit card for a major purchase, but only 36% say they’d do so again, suggests people are starting to rethink the cost and consequences of short-term, unsecured, borrowing.”
According to McGrath, secured loans, in particular, often get overlooked, but they can play a valuable role for those with equity built up in their home and who need access to larger sums to fund home improvements or to consolidate debt under a single regularly payment.
“While not right for every homeowner, all options should be considered with a broker to ensure that consumers understand all of their options and can chose the ones that best fits their long-term financial needs,” he said.
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