As the major banks tighten credit policies, leading alternative lender Pepper Money is helping customers who don’t fit the vanilla profile. Australian Broker held a roundtable and spoke to Pepper Money head of retail south-east Siobhan Williams, Property Loan Advisor mortgage broker Felicity Heffernan, Astute Financial Management lending manager Brent Rollings, Oxygen Home Loans credit adviser Donna Beazley, Smartmove Professional Mortgage Advisors team leader James Jabbour and Astute Financial Management principal Sam Ayliffe about Pepper’s non-conforming loan solutions.
Q: How long have you been using Pepper Money as a lender, and what has the company been like to deal with?
James Jabbour: At Smartmove, we’ve been using Pepper for about six years now. We had our first loan settled with Pepper in 2015, and for me I settled my first loan with Pepper in 2018. Pepper is fantastic to work with – great BDM support; the broker portal is very user-friendly; the serviceability model is very easy, very efficient to use. They have some great niches and offerings that have helped me and our business assist customers who wouldn’t necessarily fit our bread and butter. We mostly deal with prime clients, but with the exposure of Pepper we have really opened up our horizon and been able to broaden and assist a lot more clients in different positions.
Felicity Heffernan: I’ve been dealing with Pepper for about the same time as James and probably using them more and more. I’ve always had a specialty, with a very niche market being vendor finance, so I’ve always been seeking out the non-conforming type lenders. I’ve found Pepper to be really great at finding solutions for those clients. More recently, I’ve got a large percentage of self-employed clients, and the alt-doc product is fantastic in assisting them. Pepper has been refining that alt-doc product just to make it a lot more marketable. I love using the BAS, because they are the raw figures of the business, and being able to support those clients.
Brent Rollings: I’ve only been broking for three and a half years. I’ve been using Pepper since day one, and I think the reason I started to look at Pepper was I didn’t have the luxury of an established loan book or even a referral base. I was getting a lot of opportunities that were sitting outside of the standard conforming space, so I started to venture out and look at non-conforming lenders. I gravitated towards Pepper [because of its] flexibility around the policy and being able to help self-employed clients. The other thing I really like about Pepper is its industry-leading lead times, so we can submit an application and we don’t have to wait 30 days for it to be assessed. Great support, and again all those variations around the alt-doc products as well – BAS and bank statements. We can use lots of different things to demonstrate serviceability and income.
Sam Ayliffe: I’ve been in the industry for about 20 years. I’ve probably used Pepper for five or six years. What I like about the Pepper product and team is that the BDMs are very, very receptive and very good at workshopping deals. You’ve got a good support network. The assessors own a deal, and they get to it quite quickly, which is really important for our team and everybody with turnarounds. The clients actually like the fact that Pepper gets its money from the big four. Whether we’re putting it through on a BAS, or we’re looking for a consolidation of 10 credit cards that no one will do, the Pepper product is wide enough to look after people in almost any achievable lending environment. You can still get a rate from down to 2.35%. Pepper is wide enough for people to be able to enjoy the opportunity of taking a value loan in their relevant circumstances and still shifting it to something better while they’re there and not feeling they have to leave.
Donna Beazley: I’ve been accredited with Pepper for four to five years, but the last two years I’ve used them as solutions for my clients. I’ve got a lot of self-employed clients, especially tradies. I deliver it as a solution for them if it doesn’t fit with bank statements or BAS; we’ve got the accountant we have conversations with. I haven’t had any declined or turned down, which is lovely. I sell it on the fact that it’s a solution that a mainstream lender may not look at for whatever reason. But I’m going to Pepper more often as a first [choice], not a rebound, to look at the rates, because
they are competitive. So I’ve changed my mindset. I’ve put a fair few deals through in the last 12 months, and I’ve got a few on the go. The pricing’s great, the service levels haven’t failed us. We can be transparent to the client straight away.
Q: Pepper Money markets itself as an alternative lender focusing on specialist loans. How does Pepper differ from other lenders in this space?
Donna Beazley: From my perspective the others don't even compare, I’m a little bit biased. There’s some others out there that do some alternative loans, but I haven’t had to go there. So, for me, they [Pepper] are the number one operating in that space.
Sam Ayliffe: Pepper doesn’t disadvantage the strong investor, so you’ve got the client that’s got multiple investment properties; they’re not going to load their rate like some of their competitors do. But also their qualifying is really strong because the actual repayments on their investment loans do open an opportunity for the investor that’s got three, four, five properties to be able to expand a portfolio.
Felicity Heffernan: Just recently I had a client with three investment properties, who had relocated and needed to get back in with an alt-doc. She’d been to the main lenders, and she couldn’t even get the money to service a property, and Pepper was just head and shoulders above, so we basically had one lender that were able to provide for her. I’m ﬁnding also my ﬁrst home buyers wanting that quick turnaround – ‘can I get a one-day pre-approval, I need to go to auction’ – and still very reasonable rates. They’re there at auction; it’s an absolutely brilliant solution from a pre-approval point of view, which you can’t even get from most lenders at the moment.
James Jabbour: The very ﬁrst settlement I had with Pepper was in 2018 for a client who was knocked back by their bank of 15, 20 years for having a credit misjudgment. We managed to get them set with Pepper. They purchased their new home in Manly, and the property has since gone up 50% in value. We set up a plan to revisit the credit misjudgments; we actually managed to get those off her credit ﬁ le about two years later. If it wasn’t for Pepper being open to that customer, she probably wouldn’t have got the property of her dreams. That client is probably one of my closest clients; she’s written me a really long, nice Google review and referred me to her family and friends. That was the moment that really solidiﬁed Pepper for me as an option with those clients that might not ﬁt the prime product or the main lender. I’m also starting to use them now as prime lender – the rates and the turnaround times are second to none, the offering’s great, and the support from the team is
Siobhan Williams: The turnaround times do make a really big difference. Our common-sense approach to that real-life customer situation where we really understand a good balance between risk and opportunity. Sometimes we do take a perceived risk on borrowers' past behaviour, but we've proven that we're able to provide solutions to customers and it results in that customer for life. I think that’s a really good value proposition for brokers – creating those customers for life is really what helps build that business model and provide longevity of the broker business. That common-sense approach is really needed, and I think we’re the best in market for that.
Q: What does it mean for your clients and the success of your business to have access to Pepper Money specialist loan products? Can you give us an example of a client who has been in a diﬃcult situation and been successfully funded by Pepper?
Donna Beazley: Recently I was handed a client through a solicitor. The client came in thinking she had to sell her home after a bitter divorce. She had strong income and could service, but it was her credit history. Her credit report was tarnished a little bit. She was quite upset at having to move on; one of her children has a disability and she didn’t want to sell the family home and get him out of sorts. We packaged it up with Pepper, and it’s all settled. She’s got the home; her equity’s already grown substantially in nine months. The repayments are really aff ordable. It’s a really good solution and a good feeling to know that we have that there for her. It was an absolute win for everyone involved.
Sam Ayliﬀe: What I love about Pepper is they’re not disadvantaging the self-employed client that hasn’t done their tax returns. Pepper
is actually looking at those BAS statements, looking at the business bank statements, and you’re still getting rates from 2.89%. We’re not just mobile lenders or brokers any more; we’re more solution-based providers, and Pepper provides that for us. Customers that have had a loan for ﬁ ve years with one of the majors and they’re ﬂ oating at 3.5% and haven’t done their tax return so the major’s not going to move on them, well, we can move it for them at 2.99% to Pepper, and that’s a pretty good solution. Another good win is a customer with a lot of debts that they needed to consolidate – a lot of the banks shy away from more than four, which is ridiculous. I did that for a customer about nine months ago with Pepper, and she was absolutely delighted because they were going backwards – now they’re $2,000 a month better off. So, Pepper is a great solution and is creating opportunities for people that they didn’t think were there.
Brent Rollings: Just this month I’ve had two divorce settlements, and, very similar to Donna, we had two female applicants looking at losing their homes, with the kids and everybody being impacted. One of them was referred to me after being unsuccessful with prime lenders. We managed to keep her home by taking a common-sense approach to the income she receives. Those two families and those two applicants, it’s just life-changing for them to hold their homes. Eighteen months ago I had a young couple – a female applicant with some credit conduct issues, and a male applicant who had been self-employed for 13 months with no tax returns. They bought a place in Emu Heights; I think they paid $760,000. They’d been declined by CBA and a couple of other primes. They bought this home 18 months ago, and it’s worth probably $250,000, $300,000 more than what it [was]. Again, it’s just life-changing for clients when they can ﬁnd their way into Pepper with the right broker.
Felicity Heﬀernan: I’ve also got a good number of people over 50, good clients with strong asset positions, and then being able to produce some nice exit strategies where a lot of the conforming lenders are probably too tight on that. Pepper is fantastic with the exit strategies for a lot of those clients. Working with the Pepper team it’s been fantastic being able to put those exit strategies together and get those clients over the line. Having a life event does not stop them from getting a loan.
Q: How long have you been offering clients specialist loans? Knowing what you know now, do you wish you had started writing specialist loans earlier?
James Jabbour: A lot of our clients are in that prime space. Having done my first transaction with Pepper in 2018, in hindsight I do wish I’d had a better understanding of Pepper and its offerings, because I do feel like there were probably a few clients I could have helped that I might have let walk away because I didn’t quite understand what specialist products were out there. I’m grateful that Pepper has made a huge effort to upskill the team, to constantly do webinars, workshops, visit the offices and educate us on what can be done for those customers that won’t fit a prime or mainstream provider.
Felicity Heffernan: I’ve always worked in that alt-doc space. I really like it, and I think it sets your business and yourself up
– it just gives you that specialty. I do favour alt-doc lending over everything at the moment. If you can go out there as a specialist broker, I think it’s fantastic for your business. Your clients are always going to be sticky, because you’ve helped them in ways that nobody else can. I probably wish I’d known a lot more back when I first started doing it.
Sam Ayliffe: If we think about the last few years, the lenders have got harder and harder to deal with, slower at turnaround times, looking closer at clients’ living expenses. It means that a lender like Pepper, I wished I’d used them earlier – there’s clients I’ve let go that I probably could have helped. The strength of Pepper has really come from the tightening of credit across the industry. It’s a great opportunity to be able to put it in our bag and have that solution for our clients.
Q: What growth in specialist loans have you experienced, and where do you think it’s heading in the next 12 months?
Brent Rollings: The number of loans we’ve written through Pepper year-on-year is increasing. It’s actually making me think maybe I need to change the way we are marketing our business as well. Maybe there’s a place for us to start to specialise a bit more in this space. It’s not getting any easier with all the traditional lenders, and this space just provides so many options and possibilities for your clients.
Donna Beazley: I've been around a long time, and it would be silly for a broker not to get on board, especially in the last three years where the majors are saying no, this is not our space. I've noticed a growth of around 20% over the last two years. I don’t even go to majors now. As soon as I can identify the situation of the client, the history and how it fits, I’ll pick Pepper first. The growing market is absolutely going to continue to grow, especially with the self-employed. I can see that it will probably grow another 20% on my books.
Sam Ayliffe: When the major banks reviewed their low-doc policies, it opened the door for specialist lenders. Having the Pepper product coming on and Pepper educating us and making sure we know how to place its products does lead to the specialist market growing. It will grow and become a significant percentage more than it is, because as the mainstreams get harder, the more people want to stretch their borrowing capabilities or consolidate multiple debts. When we are qualifying with lenders and I think one of those clients might be a little bit tight, to qualify them with Pepper anyway because the Pepper product’s pretty good. That could be the $200k difference in borrowing capability for the client.
James Jabbour: We’ve looked at the Sydney market in the last six to eight months, and week-on-week there’s growth in record sales. Borrowing capacity is such an important thing for our customers, and Pepper does so many things differently to the mainstreams and other specialist lenders. They look at things like 40-year loan terms for example; they take existing repayments on existing loan facilities – that automatically is a couple hundred thousand in borrowing capacity. With that customer you might qualify them to purchase their next dream home or investment property. I see the specialist products becoming a lot more common in the next 12 months. With COVID, a lot of small businesses have really been impacted, and you look at some of the specialist products like the alt-doc loans where we can disregard the previous year’s tax returns – those solutions can help the next client get into their dream home or consolidate some debt. Felicity Heffernan: I see such an opportunity for brokers to specialise and grow in this space, when you think about the number of self-employed out there. I’ve got two accountants that absolutely love the specialist loans, and that’s where a lot of the growth is coming from, because, let’s face it, the BAS returns are the raw figures of the business. The two accountants are more than happy to do accountants’ letters and get the deal across the line, which is an absolutely fantastic solution for these people.
Siobhan Williams: We’re in a constantly evolving environment. As a common-sense solution provider, Pepper will always look to fill gaps where we feel we can provide an opportunity to those underserved Australians to realise their financial goals. We will constantly look for ways to improve and capture more opportunities so brokers can continue to provide solutions to those customers. We’re seeing more and more data for clients – comprehensive credit reporting now gives us two years of history. I think we’ll always have customers that might not fit that vanilla persona, and with more and more access to information we’ll just organically grow with that. Alternative income verification methods can provide great ways for those self-employed to substantiate their current and sustainable income; that’s such a big space for us. By looking at alternative documents we can really assess where that business is at today, rather than relying on old data.
Q: How does Pepper Money assist brokers in terms of examining a client’s complete financial and personal circumstances and ensuring a speedy and efficient loan process?
Sam Ayliffe: Pepper makes it easy for us, so when we lodge an application we feel confident that it’s going to come back approved. Some of the banks don’t give us that same confidence. With Pepper we know it’s going to be done in a timely manner; they’re not going to make us wait a week or two – things get turned around. They make it easy with live credit reporting and a common-sense approach.
Felicity Heffernan: What I’m loving at the moment is the speedy turnaround times. Whether I’ve got a non-conforming or somebody I would normally place with a major, I’m choosing Pepper simply because I can get that deal done. The confidence of knowing that deal’s going to be approved, I can get it through quickly, I’m eternally grateful for that. I think Pepper has got it right in terms
of how much extra the assessors are having to ask – they’ve got common-sense lending.
Q: Was there a pivotal moment in your broking career that led you to embrace alternative solutions for your customers?
Donna Beazley: My light-bulb moment would have been over two years ago when I had one of my first alt-doc clients positioned at Pepper. They were a young couple in their late 20s, working really hard, saving up a good deposit – theirs was income-based because they had a business. I wanted to know what their plans were not just in the next two years – it was ﬁve and seven and 10. These lucky people are due to settle tomorrow, two loans with Pepper – that’ll be their third property they’ve purchased in three years. One of the properties was a bit of a challenge. Had I not run the deal by Pepper, they would not be settling on their third property.
Brent Rollings: It was at the beginning when I ﬁrst started in broking and you really try to get outcomes for your clients. That drove me to look for alternatives and solutions. It was really early on that I thought, hang on, I don’t need to go to these primes to be disappointed and not get an outcome for my clients. All those examples we talked about before – we’ve had clients go through divorces; self-employed clients; credit conduct issues – the light bulb was on very early.
Sam Ayliffe: When the major banks started pulling away from that low-doc market, it was a lot harder to place the genuine clients that earn the good money that just haven’t ﬁnished their tax return or were just behind on them or had a period when their business was impacted, like COVID. That did steer me to look for alternatives for those clients that genuinely wanted to buy a property, and if they didn’t buy that year it would be up by 20%. Pepper was the solution. They came in and created those opportunities. and those clients’ equity is so much stronger from being able to have a lender like Pepper earlier. That was the pivotal moment.