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Clawbacks ‘constantly under review’: Pepper Money

by Kate Aubrey11 minute read

Following the release of its full-year results for calendar year 2022, the non-bank lender said it would continue to listen to brokers around the issue of clawbacks in resi after dumping it from commercial. 

Pepper Money Limited (Pepper Money) originated $6.8 billion in new home loans, up 7 per cent on the prior year, as reported in its full-year results ended 31 December 2022, taking its total mortgage book to $13.5 billion.

The results marked a “record” $9.6 billion in loans originated for the year, up 14 per cent on the year before, which saw its asset under management increase to $19.2 billion.

Brokers accounted for around 95 per cent of its mortgage flows.


Asset finance originations increased 35 per cent to $2.8 billion.


Thanking mortgage brokers for their “continued support”, Mr Rehayem said they were the “driving force for our results”.

“I want to also thank them for taking on new products whenever we’ve launched. So a large portion of our growth in our asset finance business has also been contributed by mortgage brokers, Mr Rehayem said.

“Our large growth in commercial real estate loans has come off the back of mortgage brokers.

“So the more that brokers are diversifying, and the more that they are servicing their customers, the more we are benefitting from that because we are aligned with them on processes, and we are aligned with them on credit and product measures.”

While the results showed an increase in new lending, the second half of the year saw subdued growth, around $2.7 billion compared to $4.1 billion in the first half.

In addition, the second half of the year also marked a fall in mortgages from its “prime” customers (47 per cent compared to 55 per cent in the first half), with near prime — customers who had “minor adverse credit” — creeping up to 47 per cent.

Mr Rehayem said the lender is diversifying its product offering: “When we feel that the bank or the prime market is probably too competitive in the context of cashbacks, and the like, we tend to then flex more into what we call new prime and non-conforming and that’s been part of our growing strength for quite some time.

“We still believe that the [non-conforming] market will be one of the fastest growing markets over the next couple of years … because of the significant rate rises that have happened over the last six to eight months.

“Unfortunately, there will be a number of customers, bank customers, especially that would have missed payments along the way and they will get to a point where they want to refinance.

“Now that CCR data will capture two years of the customer’s loan repayment history, this will alienate a lot of customers that have had missed payments in the last two or three years.”

He said this will bring new opportunities for Pepper Money that can service those customers, “rather than auto decline”.

The financial results come after Pepper announced the removal of clawback for its commercial mortgage lending products, effective as of 1 February 2023.

According to chief executive Mario Rehayem, the issue of clawback for residential mortgages was “constantly under review”.

“We are working with many of our brokers, to better understand what that entails and obviously doing the numbers in the background to see how that also works out because it is unfortunately part and parcel of the economics of the deal, Mr Rehayem said.

“As loans are becoming less and less in the weighted average life or duration of that loan, that puts a lot more pressure on the profitability of a loan or on a standalone without a clawback.

“It’s not something that we pride ourselves in but it is part of doing business.”

But he added the lender was constantly listening to its third-party channel, which makes up 95 per cent of mortgages.

[Related: Pepper Money removes clawbacks for commercial finance]

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