Big bank mortgage price wars are good for us, says non-bank head

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    The CEO of non-bank lender Pepper Money says his company benefits from the price wars between major banks in the mortgage market, because cheaper rates lead to tighter credit.

    Ahead of Pepper’s ASX listing today, chief executive Mario Rehayem told The Australian that the current low-rate conditions were “always good for us, but not so good for the customer because their applications can be declined by traditional lenders.”

    “There’s been a definite tightening in price over the last few years and there’s many reasons for that – the major banks have become more streamlined and more efficient,” Rehayem said. “But because of their sheer scale, they’ve got more selective about their customers instead of seeking a wide spectrum of different customers.”

    This cookie-cutter approach, he says, is why the big banks are finding it hard to process applications by any borrower who is even slightly different. And this is a major reason that market share for the non-bank sector would continue to grow.

    Pepper sources 95% of its loans through mortgage brokers, and claims just a 24hr approval process on all loans – a considerable improvement over the “glacial turnaround times” being offered by many lenders.

    Pepper is relisting on the ASX today, after it was delisted when a majority of funds owned by KKR took it private. The non-bank increased its initial public offering earlier this month from $450 million to $500 million. KKR-led Pepper ANZ Hold Co will hold 60.6% of the group, according to The Australian.

    Read more: Non-bank lender Pepper Money on how it intends to grow post-IPO

    The IPO will value Pepper at $1.3 billion. The float is the largest so far this year, with the proceeds to be used in the business and to pay down a $275 million bridging facility.

    Rehayem said that business conditions in Australia and New Zealand were “very strong” in Pepper’s key segments of housing and asset finance, despite signs of a hike in funding costs that have led to rises in fixed mortgage rates. Rehayem told The Australian that Pepper didn’t play in the fixed-rate market. He said that if funding costs started to rise, Pepper’s “disciplined” approach would protect its net interest margin by repricing its loans.

    “We like to run our business with a NIM north of 200 basis points, with the asset finance NIM higher than that,” he said.

    Rehayem said Pepper was also stronger for its emphasis on the broker network. Broker-originated mortgages now account for almost 60% of the Australian market, up from 52% about five years ago.

    “We have a strong affiliation with the broker market, where brokers are building their own brands,” Rehayem said. “So the trend feeds into our distribution model.”

    Pepper’s listing later today will be closely watched by La Trobe – who MPA has already reported is looking for an IPO or a trade sale.

    Ryan SmithRyan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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