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Unfavourable market conditions have resulted in a sharp drop in the non-bank’s home loan growth, but asset finance originations have risen 19 per cent at the non bank.
Pepper Money Limited (Pepper Money) has released its results for the six months ended 30 June 2023, revealing that mortgage originations fell 58 per cent on the prior comparative period (pcp), dropping to $1.7 billion.
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This followed a growing trend in the non-bank space, after several lenders recently announced dramatically reduced origination figures and new mortgage lending slows across the board.
More than half of its mortgage originations came from “near prime” customers, with prime customers making up 35 per cent of home loan originations and only 5 per cent being specialist.
Pepper Money’s mortgage arm’s assets under management decreased to $12.4 billion at the end of June 2023, down 12 per cent.
The mortgage origination figure was a sharp change from its record-high results for the six months leading to 30 June 2022, which was up 48 per cent to $4.1 billion.
Speaking to The Adviser after releasing its half-year results on Wednesday (23 August), Pepper Money chief executive Mario Rehayem commented that while mortgage originations had dropped, it was coming off a very high base.
He said: “You need to remember mortgages have come off an all-time record, a 22 year record, and the markets [at that time] allowed us to be able to originate in that kind of volume.”
Mr Rehayem told The Adviser that the competitive market conditions in mortgages meant Pepper “definitely pivoted straight into auto because the opportunity was still there”.
Overall, Pepper Money originations fell by a total of 38 per cent on the prior comparative period (pcp) to $3.5 billion in loans in the first half. This was bolstered by record growth in asset finance.
Between 95 and 97 per cent of all originations were through the broker channel, slightly higher than its full-year results from last year.
Asset finance growth
Despite shrinkage across its mortgage book, the non-bank revealed that asset finance originations had achieved record growth, up 19 per cent on pcp at $1.8 billion.
Assets under management for the asset finance arm also grew 32 per cent pcp to $5.6 billion in the first half of 2023.
It comes as the non-bank lender settled the $724.64 million car and equipment asset backed security transaction - SPARKZ 7 - yesterday (23 August 2023).
It was the lender’s fifth public securitisation transaction in 2023, having raised $3.8 billion in the securitisation markets calendar year to date.
According to the half-year results, 27 per cent of its asset finance business came from commercial brokers, with 18 per cent from mortgage brokers and 19 per cent from auto brokers.
Mr Rehayem said: “Mortgage brokers have played a material part in allowing us to be able to flex into autos and still write a significant amount of mortgages, predominantly non-conforming.
“I just want to thank the broker market for supporting Pepper.
“Although our numbers are down, the number of applications that we have transacted in any given month peaked at around 12,000, which is a 25 per cent increase on our monthly average.
“That was predominantly directed from mortgage brokers, writing a mixture of auto finance and mortgages, that’s very refreshing from where we sit because what that really means is that more mortgage brokers are diversifying into auto finance, and we’re seeing Pepper being the choice lender for those mortgage brokers,” he added.
Overall, Pepper Money reported a statutory net profit after tax of $52 million for the six months ended 30 June 2023, down 28 per cent on the prior comparable period.
‘Very excited’ about the future
Looking forward, Mr Rehayem said the lender was “very excited” for the coming months, foreshadowing that several new products will roll out in the coming months.
He said: “We’ve got a series of new products to launch from now until the end of the year, and then in the first half of next year.
“We’ve got a very strong and clear pathway of new mortgage products, new commercial real estate products, new auto and equipment products coming through the pipeline.
“What that really means for us is that we’re going to start capturing more of the market than ever before, and leveraging off our strong distribution network, but also our funding capabilities and credit know-how.”
He said the “number one driver” for the lender was to “always be prepared”, highlighting that its push into asset finance can support the lender while mortgage originations drop across the market.
“So if the markets and the funding markets restrict the business on one side of the coin, we’re ready to flip it on the other side of the coin, so we’re not just a one-trick pony,” Mr Rehayem explained.
Pepper Money’s credit quality remained strong and improved by 2 bps during the year to 30 June, consistent with the lender’s expectations.
[Related: Pepper Money lowers serviceability buffer]
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