Pepper Money responds to headline concern of serviceability

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Recognising that serviceability has been such a key issue for many borrowers in recent times, Pepper Money has responded by developing a range of policies that together can act as a bridge to get customers through the challenges. This very holistic perspective is what makes the non-bank's approach a bit different

THE SERVICEABILITY TEST is at the core of applying for a home loan, and it’s under the spotlight more than ever, says Barry Saoud, Pepper Money’s general manager mortgages and commercial. “It’s the lender’s way of assessing how big a loan your client can afford to repay over time. “One of the key inputs is the interest rate your client will be tested on. Obviously, the higher the rate, the more the borrower will be paying in interest, and this can reduce the total loan amount they qualify for.” Given that the RBA recently reported that some households are experiencing financial stress from higher interest rates and inflation, a squeeze on household budgets is likely to continue for some time. This is an economic contraction that can see some homeowners trapped in their current mortgage because they lack the equity or serviceability to refinance.

Pepper Money is one of Australia and New Zealand’s leading non-bank lenders. Established in 2000, Pepper Money first launched as a specialist residential home loan lender in Australia with a focus on providing innovative home loan solutions to customers who were being underserved by traditional lenders. Today, Pepper Money has a broad product offering of residential home loans, personal loans, asset finance, novated leases and commercial real estate loans across Australia and New Zealand.

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Barry Saoud, Pepper Money

Faced with this crisis, what can brokers do to help customers increase their serviceability? Saoud explains: “There’s been a lot of focus solely on serviceability assessment buffers – and while we agree with industry consensus that some borrowers could be assessed on a lower rate, it can’t be the only way to support clients with their overall serviceability. Which is why we have been developing a range of policies that work together to provide customers with options to get through. “In times of uncertainty, borrowers need extra support to help them navigate. Additional policy levers are required to deliver on this. By providing options on length of term and capping repayments as we have here at Pepper Money, brokers are able to give these customers the bridging relief they need to get through these times. “The key driver here is to keep customers in their homes – offering help in a pragmatic and real-life way. “The Pepper Money view on this market is that for some people in certain situations, what they need is a temporary solution, offering the support they need until the environment stabilises or until the client’s circumstances improve.” There are several options to consider when looking to help your clients increase their serviceability, Saoud says:

Barry Saoud, Pepper Money

1. Income: It sounds obvious: a higher income directly improves serviceability. But brokers should proactively be talking to their clients about exploring opportunities for salary increases, bonuses, promotions, or additional income streams such as part-time work or freelance gigs. All income streams should be considered, even things like Centrelink payments. Non-bank lenders like Pepper Money consider a broad range of acceptable income types and allowances. 2. Reduce existing debt: Lowering existing debt obligations can improve your client’s serviceability position. Borrowers can focus on paying off high-interest debts or consolidating multiple debts into a single loan. So instead of repaying individual debts with different interest rates and fees for mortgages, cars, credit cards, personal loans and even phone bills, your client can have just one ongoing repayment to manage each month, which may help save you time and money.

3. Stretch the loan term: Extending the loan term reduces the monthly repayment amount, making it more manageable. At Pepper Money, we are one of the few lenders in the country that can offer clients a 40-year loan term. However, keep in mind that longer loan terms may result in higher overall interest costs. When your client is in a better situation, you could encourage them to try to pay more than the minimum repayments to potentially reduce the extra interest cost, or refinance later. 4. Consider a co-borrower: Having a co-borrower with a strong financial position can increase your client’s serviceability. The collective income and assets of both applicants will be considered when assessing the borrower's ability to repay the loan. They have equal responsibility for ensuring that the repayments are made and therefore will assist with the loan serviceability. It goes without saying: both borrowers will need to be assessed for loan suitability and their capacity to contribute to the loan repayments. 5. Give it the non-bank test: Pepper Money has the flexibility to make lending for all kinds of real-life situations possible. We’ve always been passionate about providing solutions, particularly in the more complex specialist lending category, where people are doing it toughest. If we can find a way to help, we will. We are constantly uncovering ‘yeses’ when there are ‘nos’, and we keep testing the boundaries. “Remember that each borrower's circumstances are unique, and it's important to consider the long-term implications of any changes to serviceability,” Saoud says. “It's advisable to seek professional advice and thoroughly evaluate the potential impact before implementing any strategies.

“Talk to your Pepper Money BDM to find a serviceability solution for your client,” Saoud says. “We make it easy. Our Pepper Product Selector can give you an indicative response in under five minutes, and we have an accessible credit team who are always ready to workshop any scenarios.”

“In times of uncertainty, borrowers need extra support to help them navigate. By providing options on length of term and capping repayments as we have here at Pepper Money, brokers are able to give these customers the bridging relief they need”

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Published 24 Jul 2023

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“Give it the non-bank test. Pepper Money has the flexibility to make lending for all kinds of real-life situations possible. If we can find a way to help, we will. We are constantly uncovering ‘yeses’ when there are ‘nos’, and we keep testing the boundaries”

Pepper Money’S serviceability solutions

Up to 40-year loan terms

Fixed rates – no break costs

Real-life refinance policy (for eligible customers)

Up to 85% lend with no LMI/risk fee (prime customers)

Negative gearing considered for investor customers

No limit to number of debts consolidated; including business and tax debt

No limit to cash-out (subject to LVR and lending limits)

Broad range of acceptable incomes

Up to 5 years interest-only

https://www.rba.gov.au/publications/fsr/2023/apr/household-business-finances.html

Barry Saoud, Pepper Money

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