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The non-bank lender saw the volume of mortgage applications drop 36 per cent in the 12 months to March 2023, as home loan activity drops from record highs.
Pepper Money has told shareholders that it hasn’t been immune from the slowdown in new mortgage lending, with its mortgage applications (including commercial real estate and New Zealand applications) having fallen 36 per cent in the 12 months to March 2023.
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According to the lender’s data, application volumes began a steady downward trend in May 2022, after the Reserve Bank of Australia (RBA) started raising interest rates for the first time in over a decade.
Pepper had originated $6.8 billion in new home loans in the year ended 31 December 2022. However, volumes have been markedly down in the first few months of this calendar year.
In March 2023, for example, the non-bank lender received approximately $600 million in mortgage applications, compared to around $1.3 billion in applications in March 2022 (when mortgage lending was at its peak).
Speaking at its annual general meeting (AGM) on Thursday (27 April), Pepper Money chief executive Mario Rehayem said: “While the Reserve Bank paused interest rate rises in April [2023], the cash rate has already increased a further 50 basis points (bps) in this year, and the [official cash rate] now stands at 3.60 per cent, compared to 0.10 per cent just 12 months ago.
“Customers have now experienced 10 rate hikes since May last year, and market consensus is converging on the RBA increasing rates by a further 25 bps [in May].
“The combination of rising rates, high inflation and consumer uncertainty has impacted the overall market for mortgages,” he continued, citing Equifax data that showed that mortgage credit inquiries had declined 15 per cent over the 12 months to March 2023.
“There is little doubt that 2023 is likely to see the current challenging market conditions continue, particularly in the short term.”
However, he added that the lender had started to see an increase in mortgage inquires recently, with application volume also starting to increase in the past few weeks.
Moreover, the CEO highlighted that while application volumes have declined, the lender maintained its mortgage assets under management, closing March 2023 at $13 billion in total.
“As interest rates rose, bank competition intensified and given funding cost volatility, we took the conscious decision over the second half of 2022 to slow down new applications and to shift focus to our non-conforming segment,” he explained.
Asset finance on the up
Despite mortgage application volumes falling, asset finance applications have been rising, the lender’s data showed.
Speaking at the AGM, Mr Rehayem revealed that asset finance applications had grown 19 per cent for the year to March, reaching a new record of around $500 million in applications in March 2023.
This takes the lender’s assets under management for asset finance to over $5 billion for the first time.
Mr Rehayem said: “The strength of our asset finance business is defined through our breadth of distribution, the ease of doing business with us given our purpose-built technology, and our position in EV [electronic vehicles] and novated leasing — has seen our applications grow 19 per cent for the year to March.
“And I am extremely proud to say we have now achieved over $5 billion in AUM for Asset Finance as at 31 March 2023.
“The ability to manage performance through capitalising on different trends in mortgages and asset finance markets shows the benefit [of] having a balanced business portfolio.
“As ever, I am confident Pepper Money will continue to differentiate itself through its portfolio diversity, quality of assets, operational scale & efficiency underpinned by our core competencies of credit, funding, distribution and digitally enabled data.
“This positions us well to continue to manage through the cycle.”
The chair of Pepper Money, Mike Culhane, told shareholders that despite 2023 having started with “market challenges”, he believed the lender “continues to demonstrate its resilience and agility through the ability of the business to adapt and grow through all parts of the cycle”.
“As we look to calendar year 2023, I believe Pepper Money has never been better placed to help more customers to succeed and to continue to capitalise on the scale benefits that our investment in data and technology bring to our platform,” Mr Culhane said.
“Our continuous investment in this area sets us up for future innovation and growth potential that we believe will keep us at the forefront of our industry.”
The lender recently launched a two-year home loan offer that enables owner-occupier and investor borrowers to fix their interest rate with no break costs.
Pepper Money said the product — which is initially being offered for prime, near prime, and specialist fixed-term loans lodged between 17 April and 12 May 2023 and formally approved by 19 May — is offered at parity with the corresponding variable interest rate.
[Related: Broker channel welcomes Pepper Money fixed-rate loan innovation]
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