Pepper Money brokers bringing confidence back

Despite a tougher environment, brokers working with Pepper Money are optimistic that the ride ahead for lending could be smoother than some anticipate

Barry Saoud

Pepper Money

Industry experts

Siobhan Williams

Pepper Money

Neil Brett

Client Solution Centre

Stephanie Smith

Finance CBR

Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlement sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades' experience in financial services, Saoud has held numerous roles across areas ranging from legal to company secretary, sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.

Pepper Money

Barry Saoud

Siobhan Williams has over 17 years’ experience in financial services, 13 of them with the Pepper Money team. She is currently head of mortgages for retail broker. Williams has a deep understanding of the alternative lending sector and extensive experience across a range of support and leadership positions, including working in credit and settlements support as well as in business development management at a state level (NSW) for Regional (South East) and most recently at a national level as acting head of retail sales at the leading non-bank. Prior to Pepper Money, Williams also spent over three years at NAB in its customer lending division.

Pepper Money

Siobhan Williams

Neil Brett is managing director at Client Solution Centre. He has been involved in financial services since 1987, both in Australia and overseas. The business commenced operations in the mid-1990s as a boutique lender providing solutions to clients of financial planners. Its products are now distributed by various intermediaries Australia-wide who are all qualified loan writers or who refer the client to CSC directly.

Client Solution Centre

Neil Brett

Norman Isaac has been in the mortgage and finance industry for almost 20 years, and over this period he has helped thousands of Australians purchase their first homes, grow their investment portfolios and restructure their debt. His long tenure in the industry has allowed him to build lasting relationships with bank representatives across the vast range of lenders. In 2020, Isaac joined the team at Organic Home Loans, where he finds himself working alongside like-minded individuals who are driven by great customer outcomes and hold themselves to a high standard.

Organic Home Loans

Norman Isaac

Stephanie Smith is director at Finance CBR. With over five years’ experience in the finance industry, she has strived to understand all areas of the business, from residential to commercial. With her ability to access numerous banks, and services such as asset finance and commercial lending, she can find solutions to most financial scenarios. Not only is Smith well versed in financial products; she is also a property manager who can provide information on investment properties, as well as manage properties and find tenants in the ACT.

Finance CBR

Stephanie Smith

IS THIS the Wile E. Coyote moment the market has been dreading? Against a background of rising interest rates, falling property prices and high inflation, Pepper Money’s general manager of mortgages and commercial lending, Barry Saoud, and head of mortgages for retail broker, Siobhan Williams, recently met at Café Sydney with four leading brokers to discuss the outlook for the lending market. While borrowers are facing headwinds not seen in the Australian economy for many years, those at the coalface of the lending industry voiced reasons to be optimistic that the ride ahead could be smoother than some currently anticipate – a scenario that Pepper Money hopes to enable. Lending drops Lending appeared to be in suspended animation at historically high levels in recent months despite central bank interest rates being on the rise since May. But government data shows total housing loan commitments finally dropped below the $30bn level in July and August. The Great Unwind – if that’s what this is – was always going to be in slo-mo as the financial impact of monetary policy tightening takes time to be felt in the repayments schedules of mortgage and business loan holders.

Barry Saoud, Pepper Money

Kimberly Linder, XCEL Finance

Norman Isaac, Organic Home Loans

Another reason to be less concerned about interest rates is the record number of borrowers who locked in fixed rates at low levels. Government data shows demand for fixed rate loans peaked in July 2021 at 46% compared to pre-pandemic levels of 20–30%. Analysis shows that the bulk of these loans will remain fixed until mid to late 2023, a period when economists expect the Reserve Bank will be reducing rates again. “There are so many people that are insulated by that fixed rate space,” said Linder. Finally, an unprecedented amount of household savings has been accumulated over the COVID years and used as buffers in deposit and home loan offset accounts. The latest national accounts data shows that savings levels remain just above 2019 levels, and people squirrelled away cash at around four times the normal pace during parts of 2020 and 2021. This means that many mortgage holders still have a considerable war chest to draw on. “There was a lot of savings during COVID,” said Linder. “I don't believe we're going to see anywhere near as much mortgage stress as what the media is putting out there.”

Staying ahead of the curve Non-banks like Pepper Money need to stay abreast of these issues to ensure they have the right products for the market, and need to educate brokers on how to cater to clients. “What we’re trying to do to is adapt to these changes. We’re keeping our eye on credit and investing in tech solutions to make [the process] as seamless as possible for our brokers,” said Saoud. While the macro environment is changing, the profiles of individual borrowers are also evolving as the economy moves to a post-pandemic equilibrium. Some of these demographic changes are working to the advantage of alternative lenders, especially as the gig economy grows. “At the end of last year, what we quickly realised is that there are also different types of cohorts of new customers entering the market,” said Saoud. “We had a lot more self-employed contractor types.”

Non-banks and brokers understand that interest rate changes are now filtering through to the real economy, and inflation is exacerbating the situation for some. “What we are definitely noticing is that capacity of the borrowers to repay [is tightening],” said Saoud. This is mainly affecting people who took out loans during the recent period of historically low rates, perhaps expecting that the central bank cash spigots would remain open for longer.

Pepper Money has responded by introducing new products to cater to such groups, and by changing its credit policy. The role of non-banks in supporting customers who fall through the cracks at major lenders due to anomalies in paperwork or irregular income is something brokers value highly, especially after the disruption caused by the pandemic. Construction workers are a case in point. Many such labourers continued to be employed over the pandemic but were unable to pay off bills as a result of late payments from customers. “They were finding that their loans were going into default,” says Smith. “Whereas now, they're back onto a roll, they’re back into their normal day-to-day working – they can go into a bank, but

they've still got their [uneven] tax returns which are stopping them from doing that.” Non-banks are the only option for such groups with truncated paperwork. “I really appreciate that,” said Smith. Once these types of customers are on board, the retention rates are high. “Pepper has really [evolved] to become a long-term lender or solution for many clients,” said Isaacs. “The tweaking of [its] product suite [in this regard] has been really, really good.” Support for brokers Pepper Money provides support to brokers through regular touchpoints, including its recent Insights Roadshow, to keep them up to date not just on its products but on economic issues, and through its BDMs who are often rated by brokers as some of the best in the industry. “What [Pepper Money] BDMs will actually do is that they are prepared to actually get in, have a look at the application and say, ‘why is it not servicing?’” said Brett. “[They] are prepared to actually put time and effort to say, ‘well, if we can't do it this way, can we do it that way?’”

Drop in value of new housing loan commitments*

Jan 22

$33.2

Broker Neil Brett from Client Solution Centre said many thought rates would stay low until 2024, meaning that those who are very highly leveraged might be in trouble if rates go over the test levels that were applied when their loans were approved. “I don't think anyone actually expected in February this year, the interest rates were going to do what they did,” he said. One of the main areas being affected now is pre-approvals, which are having to be redone when borrowers can’t find a suitable property within the 60-day validity period. As property prices drop, there is extra incentive to wait as long as possible for a bargain, but when the pre-approval is renewed the customer’s borrowing power is less, due to the higher rate that has to be applied. “There are people who have got pre-approvals and … have now gone to finalise and go to unconditional, but they can't [because] they can’t service,” said Stephanie Smith, director at Finance CBR. However, this is just one part of the story. Brokers also said that when the brass tacks of the mortgage market are examined in detail, there is considerable resilience evident to counter any Cassandras crying doom.

A return to normal The extremely cheap credit that’s been available over the pandemic years was always going to be a temporary emergency measure – and experienced brokers and borrowers knew this. Now that the party is over, the COVID lending frenzy will likely be looked upon with nostalgia a few years down the track. “I don't believe … we will ever see a ‘one’ before any interest rate ever again,” says Kimberly Linder from XCEL Finance. “What we've seen with this low interest rate environment is not normal.” It's up to brokers to remind customers of this fact, which is difficult with borrowers who have been new to the market over the last two years, but is relatively par for the course with other groups. What tends to get lost in the noise about whether investors can handle higher rates is the large spike in property values and rentals since 2019. “People have to factor in that, yeah, you're paying a higher interest rate, but you're also really enjoying a higher rental return as well,” said Linder. A falling property market will also naturally act as a brake on new listings. Norman Isaac from Organic Home Loans believes people will hold back from putting property on the market, and the lower stock level will insulate against price falls. “That stock level should cushion a lot of people … from a big price drop in the property market,” he said.

Read on

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.

Find out more

Kimberly Linder

XCEL Finance

Stephanie Smith, Finance CBR

Kimberly Linder has been self-employed as a finance broker for 14 years and has her own finance company. She is first and foremost a property investor who holds a large portfolio across the country. Having experienced first-hand the benefits of owning property, Linder has a passion for educating others on the simple steps that can be taken to achieve property ownership. She holds a certificate in real estate, is a leading female broker and trusted mentor, and is highly sought after in the finance and real estate sectors. Most importantly, she is a wife and a mother of five.

XCEL Finance

Kimberly Linder

In Partnership with

Neil Brett

Client Solution Centre

Siobhan Williams

Pepper Money

Barry Saoud

Pepper Money

Industry experts

Stephanie Smith

Finance CBR

Kimberly Linder

XCEL Finance

Norman Isaac

Organic Home Loans

Pepper Money

Barry Saoud

Pepper Money

Siobhan Williams

Client Solution Centre

Neil Brett

Organic Home Loans

Norman Isaac

XCEL Finance

Kimberly Linder

Finance CBR

Stephanie Smith

Pepper Money

Barry Saoud

Pepper Money

Siobhan Williams

Client Solution Centre

Neil Brett

Organic Home Loans

Norman Isaac

XCEL Finance

Kimberly Linder

Finance CBR

Stephanie Smith

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“There are people who have got pre-approvals and have now gone to finalise and go to unconditional, but they can't [because] they can’t service”

“I don't believe we're going to see anywhere near as much mortgage stress as what the media is putting out there”

“Pepper Money has really [evolved] to become a long-term lender or solution for many clients”

“What [Pepper Money] BDMs will actually do is that they are prepared to actually get in, have a look at the application and say, ‘why is it not servicing?’ ”

Norman Isaac

Organic Home Loans

Feb 22

$32.2

Mar 22

$32.7

Apr 22

$31.8

May 22

$32.4

Jun 22

$31.0

Jul 22

$28.3

Aug 22

$27.4

35.0

Source: ABS Lending Indicators

32.5

30.0

27.5

Source: ABS National Accounts

6.0

Mar 19

Jun 19

Sep 19

Dec 19

Mar 20

Jun 20

Sep 20

Dec 20

Household savings trend by quarter

5.3

7.8

7.0

9.7

23.7

14.1

20.3

13.8

11.7

19.8

13.5

11.1

8.7

Mar 21

Jun 21

Sep 21

Dec 21

Mar 22

Jun 22

“Our BDMs provide some really great support to brokers in market”

Siobhan Williams, Pepper Money

From left: Norman Isaac, Organic Home Loans; Neil Brett, Client Solution Centre; Siobhan Williams and Barry Saoud, Pepper Money; Stephanie Smith, Finance CBR; Kimberly Linder, XCEL Finance

Other advances around digital ID verification, digital signatures and valuations have significantly reduced the time from going unconditional to settlement. The combination of human and tech support lets brokers know where they stand. “What that provides to a broker and a customer is certainty, and it gives them clarity around fees and product,” said Saoud. While some non-banks have an online assessment, the speed and accuracy of the decision via the PPS is unrivalled in the industry. Saoud said Pepper Money hopes the further lifting of its tech capabilities will give brokers even more confidence in its product range. “We've got a number of project initiatives around improving that whole credit underwriting experience to ensure that we're maintaining speed and certainty in that whole credit decisioning process,” he said. “By the end of this year, you'll see a dramatic improvement in the way in which our credit team will be able to assess those credit deals at a lightning speed.”

It’s a reputation that Pepper Money takes pride in. “Our BDMs provide some really great support to brokers in market,” said Williams. “And it's support that's backed through the same methodology that our credit assessors use when [they] actually assess the application." Technology and the software tools available to help brokers are a major point of difference for Pepper Money. Using Pepper Product Selector (PPS), the broker can get a result on a loan application within a few minutes simply by answering 14 to 25 questions online. “The PPS is all about ensuring that 24/7, you've got a response on exactly where your client fits,” Williams said.

Neil Brett, Client Solution Centre

Another way that Pepper Money helps brokers is simply through its wide range of products, including residential loans, construction, commercial and personal loans, asset finance and EV loans. “We’re also looking at launching an SMSF product in the near future,” said Saoud. This wide selection allows the non-bank to cater to different types of customers that a broker may have but, more importantly, to encourage brokers who may be overly reliant on one business stream to diversify. In an uncertain economic environment, having more than one arrow in the quiver is a wise move. “It's really important that you have diversification, because there are going to be ups and downs in the various different types of segments,” said Saoud. “The fact that you can offer a holistic offering to your borrowers really puts you in good stead for the future.”

*Excl. refinancing

“We’re keeping our eye on credit and investing in tech solutions to make [the process] as seamless as possible for our brokers”

Household savings ratio

Value in $bn

$33.2

Jan 22

Drop in value of new housing loan commitments*