Pepper reports strongest half-year result on record

Total applications increased 35 per cent year on year to $9.9 billion, supporting a 20 per cent lift in total assets under management (AUM) to a record $24 billion.

Pepper Money CEO Mario Rehayem said the result extended the momentum established in 2025, with higher lending volumes flowing through to assets under management and margins.

“Pepper Money delivered very strong results, with 1H2026 setting a new record for total AUM. Our continued focus on product innovation, making it easier for customers and partners to do business with us,” he said.

In an interview with The Adviser, Rehayem said the acceleration reflected an investment program that began in the second half of 2025.

He noted that Pepper had sought to enter a more challenging market with broader product coverage, more responsive policies, and a larger distribution footprint.

“Pepper’s growth has been driven by a mixture of enhancements that we’ve delivered since the back half of 2025, which has caught momentum during the first half of 2026, and that is predominantly coming from more products entering our distribution network,” he told The Adviser.

“That is tweaks to our credit policies, faster time to yes-and we’ve also built and invested significantly in our technology, but also our people, where they have been really focused on growing our utilisation of number of brokers that utilise our Pepper products.”

Rehayem said Pepper had anticipated headwinds in mortgage demand and had deliberately expanded both its product set and sales reach.

“It was intended that we were going to go into a market where there was a bit of headwinds, and we wanted to diversify and broaden our product reach, but also contact as many brokers as possible,” he said.

Prime drives mortgage record

Mortgages provided the clearest source of growth, with Pepper originating $3.6 billion in prime mortgages – an 83 per cent increase on the prior corresponding period.

Near-prime originations increased 14 per cent to $900 million, and specialist lending rose 65 per cent to $100 million.

Prime lending accounted for 79 per cent of mortgage originations, compared with 70 per cent a year earlier, while non-conforming loans made up the remaining 21 per cent.

Mortgage AUM grew 32 per cent year on year to $12.5 billion, comprising $7.6 billion in prime loans, up 61 per cent; $4.1 billion in near-prime lending, up 5 per cent; and $700 million in specialist mortgages, down 2 per cent.

Rehayem said Pepper’s mortgage business had materially outpaced the broader lending market.

“Our performance in mortgages was clear, with our mortgage business growing 7 times system,” he said.

Asked whether the sharp lift in prime lending marked a deliberate strategic shift, Rehayem said Pepper’s product mix was designed to respond to relative market opportunities and manage risk, rather than leave the lender dependent on any one borrower cohort or lending segment.

“We’re never weathered to one product, nor are we ever weathered to just one customer persona or cohort. For us, we try to best position where the market is going, if we feel that the market is a little bit hot and there is a bit of risk out there, then we would tend to take some risk out of the book by focusing more on prime, and if we feel there’s opportunities for us to capitalise in non-performing, we do so,” he said.

Rehayem said the lender also balanced mortgage lending against asset finance, allowing it to shift emphasis between the two businesses.

“We also counter our mortgage and our asset finance. So sometimes asset finance is an opportunity for us to grow in, and we slow down mortgages, or vice versa, or both of them grow at the same time,” he said.

“So for us, really, the growth that you’re seeing in prime is an opportunity for us to just lean or pull the lever of diversification and say, we believe that there is more momentum to be able to capitalise on in prime and that is what we have done.”

The lender reported a weighted mortgage interest rate of 7.5 per cent for prime loans, 7.8 per cent for near-prime loans, and 8.9 per cent for specialist loans.

Credit performance also improved in the mortgage book.

Loans more than 90 days past due represented 1.66 per cent of mortgage AUM at June 2026, down from 1.89 per cent a year earlier.

Inquiries buck market decline

Pepper’s higher application volumes came as the major banks reported post-budget falls in mortgage demand, particularly among investors.

The lender said its inquiries rose 11 per cent from the May federal budget, while total market inquiries declined 15 per cent over the same period.

The National Australia Bank (NAB) reported that total Australian home-lending applications fell 15 per cent in the June quarter from the March quarter and were 16 per cent lower year on year. Its investor applications fell 17 per cent over the quarter, while owner-occupier applications declined 14 per cent.

Westpac said average monthly mortgage applications fell 11 per cent over the June quarter to 29,000, while its post-budget monthly run rate was 20 per cent below second-quarter levels.

Investor applications at the bank were down 26 per cent after the budget, compared with an 18 per cent decline among owner-occupiers.

The Commonwealth Bank of Australia (CBA) reported that mortgage applications were 17 per cent lower in June than a year earlier, while Australia and New Zealand Banking Group (ANZ) said applications had fallen 12 per cent between the May budget and the end of July.

While Rehayem acknowledged the slower backdrop, he said Pepper’s product breadth had allowed it to pursue demand across a broader range of borrower needs.

“Following the federal government’s changes to CGT, negative gearing and SMSF residential lending, the market has seen a reduction in new application activity. However, we remain well positioned,” he said.

Rehayem said the policy change affecting residential SMSF lending had initially brought forward borrower activity before the cut-off and added that the more consequential development was a shift in customer demand towards commercial property funding.

“Obviously there was a mad rush for self-managed super fund residential lending before the cut-off, some of that growth is part of that and would reference that, but in saying that, what we have seen is a material shift in borrowers that were originally applying for a residential SMSF to now shifting towards obtaining an approval for commercial real estate,” he said.

“We’re able to capitalise on these investors now pivoting away from residential lending in the SMSF and now taking on board commercial real estate.”

Rehayem said the broader credit approach had also allowed the lender to address a wider potential customer base.

“We’re taking on more different types of income, which has allowed us now to tap into a larger addressable market,” he said.

Consistency for brokers

Rehayem said Pepper’s strategy in the broker channel was to offer reliability across pricing, policy, and turnaround times.

“Brokers have come to realise that Pepper is that consistent lender. We’re not one of those lenders that is one minute fast and next minute slow, and one minute competitive, next minute not,” he said.

“We’re trying to give as much consistency as possible, especially when it comes to our credit appetite. So they know, and have a higher probability to yes when they deal with Pepper. But for us, it’s doing more of the same, and just keep improving and never ever become complacent.”

He said feedback from brokers had reinforced the importance of preserving service levels as Pepper’s volumes grow.

“The one thing that brokers always say to me when I catch up with them is that no matter how much we grow, our turnaround times are always getting better, and we’re always consistent in our approach. So we’re not a one-day hero and then a one-week villain, so to speak. So we’re constantly, constantly looking to improve,” he said.

“This business has significantly invested in technology to always improve year on year in our ability to service. When you do that, and you couple that with product innovation and creating more products that are going to say yes to more customers, for us all we’re doing is continually growing inside that broker segment.”

He said Pepper regarded the trust of its broker partners as central to the lender’s relationship with customers.

“We are forever grateful, the brokers are like flag bearers of Pepper Money because they’re the ones that are introducing our brand into their homes of their customers,” he said.

“So there’s a lot of trust involved, and that trust you know is earned over time. We both trust one another as business partners, so to speak, but us, it’s imperative that we never become complacent because then we’re letting down the customers, we’re letting down the brokers, and also we’re letting down ourselves.”

Novated leasing holds up

Asset finance originations were broadly steady at $1.7 billion, but the composition shifted further towards novated leasing.

Novated lease originations rose 8 per cent to $900 million and accounted for 52 per cent of asset-finance volumes.

Commercial originations increased 23 per cent to $500 million, while consumer lending declined 29 per cent to $300 million.

Asset-finance AUM fell 4 per cent to $6 billion after Pepper completed a $1 billion whole-loan sale in May. The transaction reduced on-balance-sheet lending AUM, but moved assets into the group’s servicing operation.

Servicing AUM subsequently rose $1.1 billion, or 26 per cent, to $5.5 billion at 30 June.

Pepper also completed a $400 million prime-mortgage whole-loan sale during the half.

RAMS pushes AUM towards $40bn

The 30 June result does not include the $15.4 billion RAMS home-loan portfolio, which Pepper migrated on 1 August as part of the consortium acquisition from Westpac.

Rehayem said the post-period migration significantly changed the scale of the group’s managed assets.

“We have successfully migrated $15.4 billion of loans from RAMS, which, together with the $24 billion in assets we already manage, brings total AUM to just under $40 billion. This is a new AUM watermark for non-banks in Australia,” he said.

Pepper said the RAMS integration added 41 employees and lifted servicing productivity by 43 per cent compared with the end of the half.

The lender will also be appointed to service HSBC Australia’s approximately $36 billion home-loan and personal-loan portfolio if the Blackstone-controlled acquisition of the portfolio completes, which is expected in the first half of 2027.

The lender’s reported 1H26 result included pro forma net profit after tax of $53.9 million, up 15 per cent year on year.

Adjusted for $3.5 million in non-recurring costs associated with an unsuccessful indicative proposal from Challenger, pro forma NPAT was $56.4 million, up 20 per cent.

The group’s total net interest margin increased by 12 basis points to 2.10 per cent.

[Related: Pepper unveils sweeping expansion of lending parameters]