Broker diversification drives Pepper Money's full year results

Non-conforming mortgage loans outpace prime as asset finance grows

Broker diversification drives Pepper Money's full year results


By Ryan Johnson

Pepper Money experienced a 40% increase in new brokers using its platform, reflecting the non-bank lender's success in encouraging diversification among asset classes and supporting brokers writing non-conforming loans.

This news follows Pepper Money's generally positive full-year results, achieved despite facing "the most significant economic headwinds we've experienced since the GFC," according to CEO Mario Rehayem (pictured above).

“I'm very proud of the results and how the business has handled 2023 in all its glory,” Rehayem said.

“Around 98% of our business is generated through third-party intermediaries like brokers, so we would like to thank them for their continued support and feedback.”

A diversified Pepper Money for diversified brokers

Throughout the year, Pepper Money welcomed over 89,000 new customers along with 845 new brokers to its platform. This was largely attributed to the broker market’s desire to diversify their offerings.

While mortgage originations declined 43% year-on-year, Pepper Money’s asset finance division grew 20% over the same period.

Rehayem said the company has seen a “strong surge” in mortgage brokers diversifying into asset classes like asset and equipment finance and commercial real estate loans, which fits Pepper Money’s offerings “very well”.

Amid the “intense” competition and volatility in swap rates that had impacted funding margins particularly in most lenders' mortgage books, Pepper Money has continued its transition to a diversified business.

After asset finance originations outpaced mortgage originations for the first time in the six months to July last year, Pepper Money doubled down.

The lender launched its SMSF product range, enhanced its commercial policies, and completed its first asset finance whole loan sale to close out 2023.

This resulted in a balanced portfolio mix: Mortgages contributing 55%, asset finance (43% up from 37% last year) and 2% across other loans for the period.

“We know how to balance growth with managing for value,” Rehayem said. “As market conditions improve, we are well-positioned to capitalise on opportunities…”

Brokers shift towards non-conforming mortgage loans

While diversification between asset classes was a feature of the annual results, another positive for Pepper Money was the growth in its non-conforming mortgage book.

Mortgage origination mix for the full year was split 62% non -conforming compared to 37% prime, signaling a significant change in how mortgage brokers are using Pepper Money products.

This is a drastic shift from the year before when the origination mix was close to even (48% non-conforming compared to 52% prime).

According to Rehayem, this reflects a growing understanding of the benefits of using non-bank lenders like Pepper Money, and a diversification away from traditional banks by mortgage brokers.

“Brokers are starting to gravitate away from banks and expand their knowledge of where to place customers,” he said. “The more brokers learn and understand this space and our products, the more created value we’ll generate over time.”

Rehayem said Pepper Money has invested in technology and education to help brokers understand their products and confidently recommend them to customers who may not qualify for traditional bank loans.

This aligns well with the trend of banks becoming more restrictive with their policies, creating an opportunity for both non-bank lenders and brokers. 

Rehayem thanked brokers for their support and consistent feedback over the period, saying it would help improve products and processes.

“We’re going to deliver a number of improvements to our business model, which will only support the broker market and make them even stronger.”

To view the full results, click here.

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