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Specialising in specialist

As the major banks reduce their appetite for non-vanilla loans and more people look to brokers for their borrowing options, specialist lenders are having their time in the limelight. Annie Kane showcases what has been happening in the specialist lending market and how brokers can take advantage of this opportunity.

Annie Kane Comments 0
— 10 minute read
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A message from Pepper

Pepper Money takes a refreshingly real-life approach to lending, providing alternative loan solutions for all sorts of customers including those who are self-employed, those whose income comes from outside of the “normal” 9–5 job and those who’ve experienced financial difficulties in the past but are now back on track. Whatever a borrower’s circumstances, we take a uniquely flexible human approach, assessing each person’s situation individually.

Since 2001, we have helped well over 200,000 Australians achieve their financial goals and we live our mission in everything we do, every day: to help people succeed.

We’ve been ranked as having the Best Specialist Loans for two years running — in Momentum Intelligence’s Third-Party Lending Report: Non-Bank Lenders in both 2017 and 2018.


At Pepper Money, we’re all about discovering new ways to finance ambition.


Since our last specialist lending report, the lending environment has changed drastically. Following on from the financial services royal commission and increasing scrutiny of how the home loan market works, the major banks have been reducing their appetites for loans that fall outside of the box.

Indeed, in August of this year, the Reserve Bank of Australia’s governor, Philip Lowe, told the House of Representatives Standing Committee on Economics that the financial services royal commission had resulted in a tightening of credit, saying: “Financial institutions are becoming more risk-averse, it’s understandable. They now have very little appetite for internal process failures… so they are doubling down on their processes, which is actually a good thing.

“But it does mean that there’s a change from previous process; the process for approving credit is slower and more loans are probably getting rejected than previously would have been the case.”


Speaking to The Adviser, Aaron Milburn, the director of sales and distribution at specialist lender Pepper Money, said that the key aspect of this shift in lending is that it has not been driven by a change in the type of borrower seeking finance, but instead has come about as a result of risk appetite changes.

Mr Milburn said: “I think that the more the major lenders change their appetite on who they view as a prime borrower, the more customers we see fall into the specialist lending state. So, we’re seeing increasing numbers of people that were prime now become specialist customers only due to the fact that the majors’ appetite has changed on what sort of customer they wish to have at this time.”

He added that the rise of non-conforming customers was not so much about a rise in borrowers seeking finance from a specialist lender due to a life event, but instead was coming from “huge amounts of growth in the near-prime space”— for example, from self-employed borrowers.

According to research commissioned by Pepper Money (and undertaken by Fifth Dimension), around six in 10 potential non-conforming borrowers don’t end up getting a loan because they are either rejected or do not apply for a loan at all. The research involved 1,016 people and targeted those who enquired about obtaining a home loan over the past 24 months.

According to the report, 39 per cent of potential non-conforming customers applied for a loan but were not approved, while 24 per cent never ended up applying at all.

For those who didn’t get approved, 28 per cent said they would delay their application until their financial or employment circumstances change.

Notably, the research found that 43 per cent of those who completed their home loan applied with a broker, compared to 26 per cent who applied directly.

Moreover, 70 per cent of Pepper Money’s borrowers required help due to their type of employment, type of loan, issues with documentation or credit history.

The research also asked the potential non-conforming customers questions about what they knew about the non-conforming market.

Nearly 30 per cent said they were aware they wouldn’t fit the big four banks’ credit policies.

But Pepper has estimated that the specialist lending market could be worth approximately 10 to 12 per cent of the total home loan outstandings in Australia, which is now more than $1.7 trillion.

Given the reduced appetite from the majors for specialist or nonconforming borrowers, and the fact that there is rising hesitation from these borrowers around applying for a loan at all, the market is ripe for brokers to help these borrowers achieve their dreams of home ownership.

Mr Milburn said: “The unfortunate reality is that, in most cases, borrowers are not being made aware of their alternative options, and that is where brokers are indispensable.

“Having access to a complete range of lending solutions from prime right through to specialist will not only expand brokers’ business, it will [also] give them the ability to help more families through real-life hurdles.”

The director of sales and distribution highlighted that Pepper had therefore been focusing on offering more to brokers to help them embrace this underserved market, and it recently won the Best Specialist Loans category in Momentum Intelligence’s Third Party Lending Report: Non-Bank Lenders 2018.

It’s perhaps unsurprising that brokers have been turning to the lender for their specialist loan products, given that they have recently launched a marketing toolkit to help brokers identify potential specialist clients, rolled out a new online course as part of their Better Business eLearning Program, and created its Product Selector Tool to help brokers identify the most appropriate products for borrowers.

Most recently, the specialist lender has rolled out a new piece of software that can automatically offer a broker an appropriate Pepper product should their clients’ mortgage application be rejected from another lender.

Speaking of Pepper Resolve, Mr Milburn elaborated: “We’ve leased our decisioning model to companies who partner with the aggregators. What it does is take all the information that you’ve submitted to the lender (but we don’t see any of the data) and washes it through Pepper’s credit policies without making another hit on the customer’s credit score.

“So, when the broker receives the decline notification, they also receive an indicative offer from Pepper saying: ‘This lender has declined you, but Pepper is able to help. Do you wish to go ahead?’

“We want to make sure that no customer that has been declined or has a file withdrawn will ever go away without knowing what their financial options are. It’s then just up to the broker and customer to decide whether they enact on the offer or not.”

Pepper Resolve has already been adopted by two major broker groups and is expected to be rolled out by another four aggregators before the end of the year.

Mr Milburn concluded: “What we are saying to a broker is that you don’t have to go and try and find another lender. We are providing the option for you. Overall, we’re trying to help brokers with the whole customer journey — from education on the products out there to marketing support to acquire the customer, right through to the Product Selector Tool if they want to see if Pepper could work for them and Pepper Resolve if they forget to check!

“We’re there to give brokers that safety net so that their customers aren’t walking away without any options.”


By Mortgage Choice’s Brett Mallott

I was unfortunate to receive a decline from a mainstream lender — it was for defaults placed on my client’s credit file after her husband had died and probate was not sorted out quick enough.

I received a Resolve email with a Pepper offer one minute after the decline and the great thing is I had a soft copy of the credit report to allow me to discuss with the client.

It was decided that she would proceed with the Pepper offer and it was then a simple process of getting the Pepper privacy signed, cloning ApplyOnline and submitting the original lender’s application along with the Pepper privacy form.

Within four days, I had a fully assessed conditional approval subject to valuation only. This was all without me collecting any further information than what was supplied to the original lender (except the Pepper privacy form).

The loan was approved and matched the Resolve quote that was emailed to me after the decline, so no difficult conversations with my client. The process of documents to settlement was also smooth. It was much simpler than I had anticipated and my client was completely happy with the outcome.

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Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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