Debt consolidation in a time of uncertainty

The research was conducted among 2,068 UK adults in June 2022, 58% of whom were homeowners, within which group 25% also had an unsecured loan.

It found that the vast majority (78%) of British homeowners found themselves spending more on living costs compared with six months ago. Three in 10 (30%) of those with revolving credit, including credit cards, store cards and overdrafts, said they had an average balance of nearly £3,000 and that they had seen their rates rise over the same period.

Overall, our research found that an estimated 12.7 million British homeowners could be facing an average increase of more than £750 in annual interest rate payments on revolving credit, with 3.8 million seeing an increase of more than £60 per month.

With the two pinch points of rising living costs and more expensive credit, and an average balance of £8.738.90 per homeowner across both revolving credit and unsecured loans, such as car loans, now could be the time for sensible spenders to consider debt consolidation.

Not a last resort

For many, the phrase ‘debt consolidation’ might have negative connotations, suggesting an unmanageable or mishandled amount of debt, and a person in dire straits. Indeed, our research found that only 30% of those with outstanding debts would consider streamlining these into a single loan, while 45% said they outright would not see this as an option.

However, far from being a matter of desperation, with so much of the UK relying on unsecured credit, rates rising and the economic outlook seeming persistently gloomy, this is simply a matter of good money management.

While no financial solution is perfect for every customer, in the right circumstances, shifting increasingly expensive short-term debt into one longer-term, lower rate term can help reduce monthly outgoings, at a time when every little counts. There is also the added benefit of streamlining any additional fees and charges and having one easy payment to manage per month, reducing the risk of complications or missed payments.

There are various ways that a homeowner can use the security of their home in this situation, including remortgaging for capital raising to pay off their debts, but the best option may be second charge mortgages, as this allows borrowers to remain on a potentially more favourable first charge rate while taking advantage of the equity built up in their home.

At Pepper Money, the average median salary among our second charge customers who take a loan for debt consolidation is £53,900. These are higher earners taking proactive steps to ensure their ongoing financial stability, in addition to potentially raising their credit scores, while leaving a safe buffer of equity within their home.

While there is a risk with any form of borrowing, Pepper Money prides itself on taking a careful and considered approach, underpinned by humans and technology working in concert to deliver positive customer outcomes.

In this time of uncertainty, this is an opportunity to make the most of the continued stability of the housing market, leveraging the power of home equity to gain some breathing space. With inflationary pressures mounting, now is the time to find out if second charge debt consolidation is right for your customers.