Pepper Money’s residential-mortgage and asset-finance originations are up 40 per cent for the first half of calendar-year 2021 from the previous corresponding period and there are no signs yet of demand easing. In June 2021, Pepper Money originated A$800 million (US$593.2 million) – a monthly record.

As well as vibrant demand for housing and vehicle finance, Moir attributes Pepper Money’s increasing volume of origination to its fast turnaround times on mortgage-loan applications. This is a particularly important competitive advantage in an environment in which the property market goes from strength to strength and some lenders struggle under the weight of application volume as a result.

Pepper Money says it has delivered consistently market-leading turnaround times for the past four years. “The investment we have made in the broker network and our ability to make consistent and fast credit decisions are highly valued at a point in time when property markets are running as they currently are,” Moir says.

At the same time, arrears and losses across Pepper Money’s programmes remain at an all-time low. Nonetheless, an area to which the lender is paying notably close attention, Moir says, is the heightened level of prepayments. This is an industry-wide phenomenon, primarily driven by competitive fixed-rate offers from banks.

Moir adds, though, that the intensity of price competition in the prime space is beginning to unwind as stimulus from the Reserve Bank of Australia’s term-funding facility (TFF) dissipates. Regardless, he reveals retention strategy is currently a key focus for Pepper Money.

Driven by its loan-origination success, Pepper Money is one of the largest issuers in the Australian public securitisation market. It has printed A$4.8 billion in 2020 and A$3.2 billion in 2021 so far across its three programmes. It has also added A$700 million of warehouse capacity.

With three diverse securitisation programmes, Pepper Money believes it is able to appeal to a broad range of investors. This has served it well as the securitisation market has run rampant over the last few months.

Pepper Money has seen significant margin compression in its prime and nonconforming programmes – I-Prime and Pepper Residential Securities – since mid-2020. Such is the appetite of investor demand for residential mortgage-backed securities that the differential in pricing between the senior notes of Pepper Money’s prime and nonconforming programmes has narrowed to 10 basis points, Fischer reveals.

“In fact, some investors have a preference for our nonconforming portfolio, attracted by the extra credit enhancement and excess spread,” he reveals.

Fischer also says Pepper Money’s auto asset-backed securities (ABS) programme – SPARKZ – is popular with investors due to the diversity the underlying collateral provides and the shorter weighted-average life of its securities.

Indicative of the level of investor demand, Fischer says Pepper Money has received a number of reverse enquiries in 2021. While the nonbank aims to issue one or two deals a year from each of its programmes, one significant reverse enquiry for its auto ABS product was too compelling to ignore. This means Pepper Money has not publicly issued from its SPARKZ programme so far in 2021.

For how long this capacity will be available in the Australian securitisation market is unclear as banks – particularly the majors – gradually return to term funding after the end of the TFF on 30 June.

“We are very pleased with the strength of the market and its ability to support the volume of nonbank issuance – but this is a unique situation. Although we have been able to gain new investors in our programme throughout this time, our expectation is for normal market conditions to return,” Moir comments.

Foreign-currency issuance is a key part of Pepper Money’s funding strategy. The company regularly executed tranches in euros and US dollars prior to the pandemic. Pricing conditions since March last year, however, have made offshore issuance a difficult case to make for many nonbanks.

Moir says Pepper Money is monitoring the US dollar market with an eye on executing a transaction in 2022. He adds that the US market’s transition to SOFR as a benchmark will be an additional factor the issuer considers as part of the timing of any potential transaction.