FR: Pepper Homeloans has just launched in the UK – what benefits will it bring to the UK market?
Pepper Homeloans is the global brand name for the specialist mortgage lending arm of the Pepper Group, a diversified financial services business with core capabilities in lending, asset management and advisory services. Headquartered in Sydney, the company has expanded internationally across Europe and Australasia with £20 billion assets under management. Just under half of Pepper’s global AUM is in the UK.
Pepper Homeloans products are distributed nearly exclusively through mortgage intermediaries. A Pepper customer in the UK is someone who has experienced an isolated and identifiable event in the past that caused an adverse effect on their credit profile. The event may have been a job loss, illness or a death in the family. Since the event, the customer can demonstrate that the incident is behind them and that they are back on their feet, managing their affairs in a responsible manner. These customers are employed, have a steady income and the prior credit eventno longer has any impact on their ability to maintain a mortgage. Our underwriters go through a robust training program. We arevery comfortable with their ability to assess unconventional credit histories and we are committed to serving those customers whorequire a more personalised approach to lending.
We pride ourselves in providing the highest level of value-added service including manually underwritten applications with individual case owners. Every case owner manages the applications from start to finish. We believe that a single point of contact throughout the process will ensure the Intermediary will never have to explain their case more than once – this is essential when working with multiple intermediaries whose customers generally have unusual circumstances.
Since no two customers are the same, our product offering is designed for maximum flexibility. We have analysed the performance of our extensive UK back-book of £8bn in assets under management and our products are designed based on how customers have performed with similar attributes to our existing products. Our experience and track record have enabled us to create an underwriting process that is transparent and easy for our intermediary partners to understand.
FR: How does Pepper Homeloans fit into the bigger picture? Do Pepper have plans to introduce other businesses to the UK too?
In the UK, we have launched our mortgage platform first because globally, Pepper was founded on residential lending and it’s one of our key strengths. Additionally, our front-end and back-end platforms are ideally suited to deliver this service. However, across the Pepper Group, our local businesses specialise in a number of different products. For example, in South Korea they provide unsecured personal loans and second charge loans; in Spain, retail point-of-sale finance; and in Australia they provide prime mortgages, specialist mortgages, auto finance, small-balance commercial lending and small-ticket leasing.
Eventually, we aim to build on and leverage these core competencies and create an independent one-stop-shop in every jurisdiction that it operates in. Ultimately a Pepper customer, regardless of their location, will be able to apply for a mortgage, an auto loan or even a commercial loan.
In the future, we also plan to launch into the second-charge market. Although for now, Pepper is focused on specialist first-charge residential and buy-to-let lending.
FR: What makes Pepper different when it comes to specialist lending?
It’s simple – we work with intermediaries through open and transparent dialogue. During extensive interviews and focus groups with Intermediaries, we found that they toooften feel that they are left out of the process. Our ‘intermediary input’ approach has been very well received thus far. Intermediaries have access to our decision makers – whether the answer is ‘yes’ or ‘no,’ how we got there is completely transparent. We provide them with every opportunity to achieve the right outcome for their customers. If the customer’s situation makes sense, we can unlock lending opportunities through tailored products that are based on years of experience and significant data.
FR: Where do you see the sector going in the next few years, both in the UK and internationally?
At the moment, there are a limited number of specialist lenders all working hard in their own way to increase their market share. However, the demand for specialist mortgage products is greater than the current supply, particularly following the Mortgage Market Review and pension reforms. Intermediary market share is increasing and we expect that the significance of the specialist sector will grow by many multiples of what it is today.
We predict that specialist lending will become an increasingly important sector in the mortgage market over the next few years, which will entice new non-bank lenders to launch. It is vital that non-bank lenders diversify their revenue source in order to protect themselves from financial market shocks. This can be achieved by multiple sources of revenue.
To put the UK market into an international context, we view our presence in the UK as a long-term investment. Pepper has a global workforce of around 1,300, of which the UK currently employs 250, which we expect to rise to 300 by the end of 2015.We want to build a sustainable business that is successful in the long-run and will be an increasingly important part of the Group in the near future.
FR: What future regulation will affect the industry?
Outside of MMR, which was introduced over a year ago, and the forthcoming European Mortgage Credit Directive, it was good to see the FCA launch Project Innovate, an initiative to foster innovation in financial services. Through its Innovation Hub, the FCA seeks to a) provide direct support to innovators, and b) consider how it can adapt the regulatory regime to foster innovation.
Yes, the MMR has and the MCD is likely to impose some challenges for the types of customers we can help, however this is balanced by a forward looking regulator that wants new and established businesses to be able to introduce innovative financial products and services to the market. This all adds up to a healthy, robust industry and one where Pepper can thrive.
