Some Pepper mortgage customers face steep climb in interest rates after ‘error’

Pepper Finance, the mortgage services provider used by several investment funds and banks to manage Irish loan books, undercharged some 2,500 tracker and variable-rate mortgages after telling them their interest repayments would increase in line with European Central Bank (ECB) rate hikes but failing to bill them the correct amount.

On Friday, the Australian firm said it would not seek to claw back the interest amounts that have gone uncollected, in some cases since August 2022 when the first ECB rate hike was passed on to customers. However, it means that a significant proportion of the 2,500 affected customers will face steep increases in their monthly repayments as Pepper rectifies what it has called an “error” in processing, passing on some 18 months of interest rate increases in one go.

Pepper said a 60-day grace period will be in place to give borrowers concerned about their ability to afford their new monthly repayments time to engage with Pepper and work out a payment plan.

A cross-section of loans from residential to commercial and buy-to-let mortgages are understood to have been affected by the processing error, which was discovered last year.

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Pepper will write to the affected customers, understood to represent about 2 per cent of its total loan book, advising them of their options.

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For some tracker mortgage customers, it means the amount they were being billed on a monthly basis had not changed since the ECB’s first rate hike in July 2022. Their monthly repayments will now be increased to to reflect the increase in the ECB’s base rate from zero per cent in 2022 to 4.5 per cent since September last when Frankfurt announced its most recent rate hike.

A range of options will be available to customers to ensure repayments remain affordable, Pepper said. The Irish Times understands some customers will be able to fix the interest rate on their monthly repayments at 3 per cent over two years.

“Pepper Advantage Ireland fully understands and acknowledges the error and the challenges and concern it may create for customers,” a spokesman said.

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“We apologise for this error and want to reassure customers that we are taking the necessary steps to support all affected borrowers.”

A spokeswoman for the Central Bank of Ireland confirmed the regulator has been working with Pepper in recent weeks to rectify the error.

“The Central Bank’s priority has been to ensure that Pepper put in place an effective, consumer focused plan to support all affected customers. This includes providing additional supports for customers who may have difficulty in meeting repayments.

“The Central Bank expects that all regulated firms have adequate systems and controls in place and where issues that affect customers arise, they should be addressed and rectified, with the overarching objective of protecting customers’ interests, including ensuring that they are not left out of pocket.”

Customers with concerns about the impact of the error on their monthly repayments are being urged to contact Pepper directly.

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