ISCOVER
Prime residential and commercial mortgages rose 171 per cent over the first half of FY2024–25, accounting for 70 per cent of new business at Pepper Money.
Strong demand for prime mortgages and asset finance has bolstered Pepper Money’s loan book growth, according to its half-year results.
For the six months to 30 June 2025 (1H25), the non-bank lender revealed total originations rose 38 per cent on the prior corresponding period, reaching $4.5 billion.
Applications were also up, increasing 10 per cent on the prior half and 30 per cent year on year to $6.8 billion.
New mortgages across Australia and New Zealand jumped 53 per cent on 1H24 to $2.8 billion, a 21 per cent lift compared with the second half of 2024.
Around 97 per cent of Pepper Money’s loans are originated from the broker channel.
Prime lending up 171%
The results show that the composition of its loan book has materially shifted over the past year.
Prime originations surged 171 per cent, from $700 million to $1.9 billion, representing 70 per cent of all new home loan settlements in the half.
Pepper Money chief executive Mario Rehayem told The Adviser that prime growth was a result of deliberate strategy and policy changes. “We’ve always had an appeal to prime borrowers, and for us, it really comes down to the type of service levels we’re giving to our brokers.
“We did come out with some quirky changes to our policies that allowed us to open up more of a total addressable market in the mortgage space … So there is a combination of both residential and commercial growth, and that has all been strategically planned from our side,” Rehayem said.
The CEO outlined that there had been more than a dozen changes to prime policy across both residential and commercial loans over the half, including postcode changes, credit policy tweaks, increases to loan limits and loan-to-value thresholds as well as “being a little bit more flexible in certain areas where [Pepper] hasn’t been in the past”.
By contrast, non-conforming lending now accounts for just 30 per cent of new originations, down from 60 per cent in 1H24.
Rehayem said this reflected market conditions – suggesting that other lenders were pricing near-prime loans below market – rather than waning appetite.
Indeed, while the percentage change has changed drastically, the dollar value of near-prime had only dropped by $200 million when comparing comparative periods.
“We’re still writing solid non-conforming volume – we’re just putting on more assets on prime around that. If the market starts to price non-conforming better, then we will see an increase in our non-conforming flow … it’s a highly contested part of the market right now,” he said.
White-label lending providing more than half of flows
The group’s white-label business was the largest contributor to new flows, with settlements climbing 86 per cent to $1.4 billion.
White label represented 52 per cent of new mortgage originations (up from its usual level of circa 40 per cent), followed by its retail offering, at 44 per cent, and direct at 4 per cent.
Rehayem said this reflected Pepper’s longstanding leadership in the white-label space, as well as increases from white-label promotions plus changes to aggregator lender panels.
“We do run the largest non-bank white-label program in the country. It’s been part of our business strategy now for over 10 years,” he said.
“Growth in those segments is a reflection of those aggregator groups growing … we’re embedded with practically nearly every aggregator group with a white-label solution, especially all the larger ones. So we’re just a beneficiary of their growth.”
He added that brokers continued to back Pepper for consistency and customer experience.
“Every time that we’ve said we want to grow, it’s been very well received by the brokers. They know we are fixated on a seamless process, looking after their customers post-settlement, and not creating channel conflict. Brokers have been very vocal because Pepper has an exceptional customer experience at the back end.”
Pepper’s mortgage portfolio contracted during the period. Total mortgages under asset fell 16 per cent, from $11.3 billion to $9.5 billion, largely reflecting three whole loan sales totalling $1.7 billion.
However, Rehayem explained that while this reduced mortgages AUM, those loans remained in the business through servicing.
“So, in theory, you will see a 16 per cent reduction in mortgage AUM, but a 90 per cent increase in servicing AUM,” he told The Adviser.
Asset finance growing
Indeed, growth in servicing and asset finance divisions helped see total group assets under management rise 4 per cent on 1H24 to just over $20 billion – the first time the lender has surpassed the $20 billion milestone.
Assets under management in asset finance rose from $5.7 billion to $6.3 billion, with no whole loan sales executed during the half.
Over 1H25, asset finance originations increased 19 per cent to $1.7 billion, including $800 million in consumer assets, $500 million in novated leases and $400 million in commercial finance.
Within asset finance distribution, novated lease companies were the largest contributor (49 per cent of flows), followed by commercial brokers (17 per cent), auto brokers (13 per cent), mortgage brokers (11 per cent) and dealers (9 per cent).
New products and tech expected in 2H25
Pepper said it is optimistic about the second half, pointing to strengthening consumer confidence, double-digit application growth and expectations of further cash rate reductions.
The lender noted household saving ratios have returned to the long-term average of 5 per cent, which it said underscored mortgage customer resilience.
To capture growth, the group said it is focused on expanding its distribution footprint and diversifying its product suite.
Rehayem told The Adviser: “There will be more changes to policies, more product tweaks, product launches. We’ve got quite a number of them lined up, we’re just waiting for the right moment to be able to launch them.”
He revealed the lender would continue to leverage technology and artificial intelligence to cut origination costs and enhance customer experience.
“We’re also rolling out a significant round of digital tools, which will be an extension of AltDoc Express. We believe we will once again deliver another market-first rollout of tech for the self-employed, which we’re very excited about,” he said.
“AI has been part of the business for a good three to four years, but the pace of AI evolution has accelerated recently.
“Where AI comes in for Pepper is in removing human error and supporting our people to be faster, more efficient and more accurate in decision making and when dealing with customers. For example, AI can alert a staff member if a customer’s tone on a phone call is stressed.
“But it’s not about replacing people; it’s about strengthening the service our people give.”
Rehayem concluded by saying that brokers remained central to the company’s growth strategy.
“Ninety-seven per cent of all flows are coming through mortgage brokers, and 100 per cent for auto finance through intermediaries.
“We’ve had some record months across a number of aggregator groups, which shows brokers are voting with their feet and choosing Pepper,” he said.
“I want to take the time to thank all of our supporters – our aggregator groups, white-label partners and brokers – for always being accommodating of our BDMs and supporting Pepper.”
Overall, Pepper Money reported statutory and pro-forma net profit after tax of $47 million, up 2 per cent on 1H24.
Earnings before interest, tax, depreciation and amortisation (EBITDA) dipped slightly to $89.5 million, compared with $89.8 million in the prior comparative period and $98.7 million in the previous half.
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