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The non-bank lender has announced the removal of clawbacks for its commercial finance products during a time of strong growth in the commercial property market.
Pepper Money has also announced that it will be simplifying its fee structures on commercial products, supporting more brokers diversify their businesses, and make the non-bank lender “easy to do business with”.
The removal of clawbacks for its commercial lending products has come into effect as of 1 February 2023.
The non-bank lender stated that the change was made during a time when there are strong signs the commercial property market is positioned for growth.
According to Pepper Money, reports show that the number of mortgage brokers writing commercial finance loans has increased by almost 15 per cent between the October 2021 and March 2022 period.
Additionally, the value of commercial loans settled by mortgage brokers reached its “highest ever” value at $15.98 billion, an increase of $5.71 billion or 55.5 per cent year-on-year.
Pepper Money has also increased its ability to fund both metro and non-metro areas due to the growing demand for commercial lending.
General manager mortgages and commercial at Pepper Money Barry Saoud stated commercial lending settlements have accelerated, along with borrower profiles shifting.
“Pepper Money is committed to supporting brokers to meet the growing demand by removing commercial lending clawbacks on early payouts.
“We’re backing the growing number of brokers that are diversifying their offering and supporting another SME’s business.
“There is no substitute for the commitment brokers provide to their SME clients, so we have taken this step. We listened, so we know this is a welcome change for our broker partners who are writing commercial deals,” Mr Saoud added.
This move has elicited positive reactions from the industry.
Senior lending adviser at the Lending Association QLD Andrew Psalti said: “We love dealing with alternative commercial solutions that make sense.”
“Pepper Money gives us just that. The removal of clawbacks and reduction in legal fees will only make the offer more compelling.”
Director of Pftiz Financial and Business Solutions, Sonja Pfitz said: “Pepper has made it easy to do business with, from removing clawbacks, reduced fees, flexible options, and allowing brokers to talk directly to our credit managers - which is really important to ensure we as the broker are able to tell that customer’s story directly to the credit manager if there are any questions.”
Why are clawbacks an issue?
The Adviser has recently covered the issue of clawbacks in a feature for the February edition of the magazine.
2022 saw record levels of home buying activity amid record-low interest rates, which kept brokers busy during the start of the year.
Along with that, broker market share also hit a new record, surpassing 70 per cent for the first time, according to the Mortgage and Finance Association of Australia (MFAA).
Record-high cashback offers also flooded the market, seeing some lenders offering up to $10,000 to borrowers.
However, while brokers have demonstrated their value to borrowers, their actual value is being eroded by clawbacks. With refinancing hitting a boom period, the issue of clawback has taken some brokers to a breaking point.
Clawbacks were first introduced following the abolition of exit fees back in 2010 as a measure for banks to be able to recoup the cost of entering into a credit contract if it was refinanced externally, along with reducing the likelihood of brokers churning loans to gain a new upfront commission.
While most brokers agree that clawbacks are fair if a loan is lost due to their own doing, it’s universally acknowledged that it isn’t fair when a loan is lost due to a change in circumstance.
The top reasons brokers list if a borrower breaks their loan is due to the three D’s: divorce, disputes and death.
Broker Gary Eckel from CommRural Lending told The Adviser that he had arranged a $2 million commercial loan for a client who passed away within 12 months of the deal. This resulted in the security being sold and the loan being paid out.
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“We spent a lot of time and effort to arrange the loan and the bank clawed back 100 per cent of the commission,” he told The Adviser.
“… We were charged an application fee of 0.5 per cent as well as normal ongoing admin charges. We ended up with nothing.
“Surely that is unfair. Why should we be penalised?”
[RELATED: Claws out]
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