Pepper Money CEO says more brokers are partnering with the non-bank lender
Non-bank lender Pepper Money has enjoyed another successful year despite a market hit by rising interest rates and fierce mortgage competition.
CEO Mario Rehayem says brokers and their customers are facing two very different challenges, and the best brokers operate to a robust, ‘always on’ business model, which means they can adapt to market conditions as they change.
“When interest rates are ultra-low and there’s significant demand coming through, brokers are at the pinnacle of taking advantage of that opportunity. But when we enter into a market impacted by 10-plus consecutive rate rises, this is also an opportunity for brokers to broaden their remit of who they can help with specialist lending and shift their focus to existing customers,” Rehayem says.
“If you’ve got the recipe right, you will be busy regardless of the economic climate.”
Rehayem says that when rates are low, customers receive guidance from brokers and lenders via serviceability calculators to ensure they are not financially overcommitted. “But this is typically a point-in-time assessment of the customer’s current borrowing capacity and expenses, and then real life hits.”
Mortgage borrowers might then start to increase their liabilities through products like credit cards, which will impact their available discretionary spend.
Rehayem says Australians need to take a close look at their discretionary spending and “empower themselves by managing their finances instead of being at the mercy of their financial circumstances”.
While only a small percentage of customers are really hurting due to rate rises, he says brokers can play a meaningful and influential role. Simply asking customers questions about their expenses can prompt
them to take stock of their spending habits.
Brokers need to stay in touch with their customers and ensure they have access to the best loan products and options available at
any given time. Taking extra time to show a customer all their loan options can put more money back in the borrower’s pocket, help them get the best option for their circumstances, and even be the difference between getting an approval and delivering a ‘no’.
Over the past 18 months, the cost of funds was at an all-time low, and Pepper Money was able to capitalise on this, resulting in the lender achieving significant growth.
“We were able to serve more customers than ever before, due to our market-leading turnaround times coupled with our creditcascading process and competitive rates,” Rehayem says. “We are obviously no different to any financial institution – our cost of funds is influenced by market conditions.”
He says now that the cost of funds has significantly increased, non-banks have had to reassess their position in terms of volume versus margin. Even some major banks are struggling to grow due to strong competition and cashback offers.
“Time will reveal that these cashback strategies are not sustainable; sooner or later, it will come to an end.”
Once it ends, banks will increase their deposit rates and further increase home loan rates. “This will see the resurgence of nonbanks being much more competitive than they’ve been in the last six months.”
Pepper Money’s advantage is that “we push our own boundaries to keep creating financial inclusion in every way we can, by pivoting to the market conditions and delivering what customers need”, Rehayem says.
“We want to ensure our mission of helping people succeed is synonymous across everything we do – in technology, product design, customer service and more. We continuously improve the experiences
we o er and maximise the best possible outcome for our brokers and their customers. That’s very hard for the big banks to replicate due to the diverse loan options that we offer.”
Rehayem says Pepper Money has consistently pushed the envelope with regard to products that satisfy the real-life needs of real customers, filling a void left by banks with their “cookie-cutter approach”.
Pepper Money is a “market leader” in the non-conforming mortgage space, he says, but it also has a diverse range of lending options across prime, near prime, specialist, commercial real estate and asset finance.
“When the market softens and loan volume decreases, many brokers look to diversify their businesses. They’ll look to serve di erent borrower segments, such as those with a life event or debt consolidation. Brokers will also look at asset finance and car loans.
“Year to date, we have experienced a significant increase in the number of brokers that have submitted a loan to Pepper Money for the first time.”
While Pepper Money originates more loans than any other non-bank, there’s still room to grow. “We don’t believe we’ve hit that ceiling,”
Borrowers who have struggled to cope with rising interest rates and quickly readjust theirspending might miss a few repayments, he
says. Unlike banks that can decline loan applications based on one missed repayment, Pepper Money assesses the customer’s situation carefully and holistically.
“The beauty of specialist lending is we make it our role to understand the customer situation and not adopt a ‘computer says no’ mentality. We understand that real life happens,” Rehayem says.
Commercial real estate loans are a hot commodity for Pepper Money at present. “We have seen a significant increase in applications and volume in this space.”
To assist brokers who are unfamiliar with CRE loans, Rehayem says Pepper Money has made the submission process almost identical to submitting a residential loan.
“We’ve also seen a significant increase in refinancing, and many customers actually have a good portfolio of commercial properties. They’ve come to Pepper Money to refinance or get cash out to grow their commercial or residential portfolios.”
Rehayem says more mortgage brokers are diversifying into commercial real estate and turning to Pepper Money because it has “stripped away the complexity”.
Over the next 12 months, Pepper Money will continue to focus on product innovation. The non-bank recently pioneered a new mortgage option in the Australian market: a fixed rate product with no break costs. “That’s the first of more innovative products to come.”
Around 40% of Pepper Money customers are self-employed, and the non-bank lender will introduce fully automated documentation processes for them, Rehayem says.
Another focus is on technology to improve post-settlement servicing, including self-help options for customers to manage their loans.
“Chatbots are becoming a feature in every industry. Real-time broker support is here, as we recently launched our Broker Assist chatbot to direct brokers to the answers they need,” Rehayam says. “We also want to ramp up education and confidence of brokers in the non-bank space. We’re invested in making it easy to do business with us, to make sure brokers maximise every customer interaction they have.
“If you haven’t done it, try us. Don’t assume you know where our boundaries are. If you have a customer that doesn’t tick the boxes for whatever reason, give it the non-bank test. If Pepper Money can help, we will.”