CEO says there will be a greater need for near-prime and specialist products because of COVID
In a post-lockdown environment, there will be a greater need for near-prime and specialist lending products, according to Pepper Money Australia CEO Mario Rehayem. The problem is, there have recently been a growing number of lenders gravitating to thinly priced, prime mortgages, representing a tightening of credit policies over time. He told MPA this trend would lead to more and more disgruntled customers not getting a loan – which is where lenders such as Pepper would really come to the fore.
“There’s no doubt that post the lockdowns and once we start to live with COVID and it becomes the norm, we will see a growing number of customers that are not going to be able to obtain a loan from a bank or prime lenders because of all the hardship requests that they were in during that lockdown period,” he said.
While each bank has a different approach, Pepper’s “very forensic style assessment” enables it to take on a higher level of calculated risk in terms of the customers it is comfortable taking on, he said. This differs from the “computer says no” approach of many traditional lenders.
“We believe that the market will pose greater need for a near prime specialist product post-lockdown and we are extremely well-positioned to take advantage of that and help brokers service more customers that are being left out,” he said.
Brokers played a key role in Pepper’s growth this year, with 95% of mortgage volume coming from the third-party channel in the first half.
“The ability for us to service 10,500 self-employed customers this half is a record for Pepper and it’s probably one of the proudest milestones we recently hit,” he said. “We have had a focus on self-employed for many years and now, even during these particularly uncertain times, we were able to service more self-employed customers than ever before.”
Rehayem said Pepper’s first half results, in which the non-bank posted record originations of $3.7 billion, up 40% on pcp, were a result of “a strong housing market, a strong demand for asset finance, coupled with a resilient business model that we’ve been chipping away with for the last 21 years with mortgage brokers.”
He also pointed to the importance of consistency in an environment where many lenders have fallen behind on processing times.
“If we take a step back and think of the environment that the customers and the brokers are operating in, applying for a mortgage, traditionally going to the big banks, waiting up to five weeks to find out whether they’ve actually got a loan or not, to only then be turned down - this then puts them on the back foot to look for finance because they’ve waited that long for a file to be picked up by the major bank,” he said. “The consistency in our credit decisioning builds confidence in the recommendation of a Pepper product, purely because brokers want to feel confident in front of a customer recommending a product they know is going to get sent. Leveraging off our credit cascading model gives them the ability to convert more loans than any other lender.”