Another increase in the Bank of England Base Rate at the end of March was accompanied by the usual round of speculation about the impact on mortgage customers. However, when rates rise, it’s not just mortgages that become more expensive of course. It impacts all forms of borrowing. 

According to the comparison website,, the average interest rate on a credit card at the end of March was 20.35%. Six months ago, it was just 18.16%. 

Despite this increase in the cost of borrowing, rising inflation and the cost-of-living crisis are encouraging more people to borrow more money and the Bank of England has reported a 12% year-on-year increase in consumer credit borrowing. 

Credit cards and overdrafts may provide a temporary cashflow reprieve for borrowers, but they can prove expensive in the long term. 

For some customers with long-standing consumer credit balances, debt consolidation can provide a way of cutting the cost of their borrowing, reducing their monthly outgoings on interest payments, and ultimately paying off their debts. 

There are always considerations in converting unsecured debt to secured debt and potentially increasing the term over which the debt is repaid. However, in the right circumstances, consolidating debts in this way can provide an important tool for borrowers who want to gain greater control over their monthly finances.  

Consolidating revolving debt, such as credit cards and overdrafts, doesn’t just provide a way for customers to lower their monthly outgoings, it also provides a realistic route to becoming debt free as the balance will eventually be paid off if all the payments are made. Debt consolidation may have negative associations, but, when used correctly, it could be considered as smart financial planning – reducing the cost of servicing debt and eventually paying it off at a lower rate. 

If you are working with customers thinking about consolidating debts with finance secured on their property, there are two main options. One is by raising capital when they remortgage, the other, which is often overlooked is by way of a second charge mortgage. The latter can be taken at any time, even if the customer is tied in with ERC’s on an existing mortgage deal. 

When it comes to choosing the right lender for debt consolidation, there are some things you need to consider. Many first charge lenders will include a maximum debt to income ratio as part of their affordability calculation on a remortgage, which could limit a borrower’s ability to raise enough capital to clear their debts. However, not all lenders take this approach, and, at Pepper Money, we have no predetermined level of debt when choosing a second charge mortgage. 

Some lenders will also limit the LTV to which they allow debt consolidation, but again not all lenders. At Pepper Money, our second charge mortgage can be used up to 100% LTV for debt consolidation. 

Consolidating debts with a second charge mortgage often provides customers with more flexibility and can offer additional advantages and could even help your customers improve their affordability position when they come to remortgage in the future. Mortgage affordability is based on monthly outgoings, so reducing the amount spent on servicing credit reduces those outgoings. On top of this, customers with accounts on revolving credit, have the potential to significantly increase their borrowing in the future without the need to apply for further credit. So, by paying off these accounts, and then closing them, borrowers can put themselves in a stronger position to secure the right remortgage for their circumstances. 

Consumer credit is rising in both volume and cost, and it could be putting a squeeze on the finances of some of your customers. Debt consolidation isn’t right for everyone, but it could provide a good option for some customers – helping them to reduce their outgoings and ultimately pay off their debts. It’s worth raising the conversation to see how you might be able to help your customers take greater control over their finances. 



Ryan McGrath,
Second Charge Sales Director