Pepper plans to offer split mortgages

Australian group plans to warehouse up to half of qualifying mortgages

Australian financial group Pepper Asset Servicing is planning a split mortgage product that will offer rebates on the warehoused portion of the loan for those who meet the terms of their new repayment schedule or make additional payments against their borrowings.

The split mortgage will be made available to Pepper’s 3,500 sub-prime mortgage customers that it took over after its acquisition of GE Woodchester Home Loans Ltd’s €620 million portfolio.

The split mortgage will see the outstanding balance on the loan divided into two parts based on an ability to repay. Up to half the mortgage will be “parked” by Pepper to be dealt with at a later date, with a repayment schedule set out for the balance of the loan.

Under the terms of its split mortgage product, Pepper borrowers who keep to their repayment schedule on the live part of the mortgage will receive a 5 per cent rebate on their annual payments. This rebate will then be offset against the piece of the mortgage that has been warehoused.


So if a borrower pays €2,000 a month in mortgage payments to Pepper, as per the terms of their agreement, come the end of the year, a sum of €1,200 will be offset against the part of the home loan that has been parked.

Those borrowers who accelerate the repayments on their mortgages will be entitled to a 20 per cent rebate on this money at the year end, which again will be offset against the warehoused mortgages.

Pepper plans to review the split mortgages every three years. In cases where borrowers have improved their earnings, Pepper will subject half of the additional income to review. This is in line with guidelines from the new Insolvency Service of Ireland.

Pepper’s sub-prime borrowers typically had impaired credit ratings and paid higher interest rates than were the norm to secure their loans before the financial crash in 2008.

Pepper paid a substantial discount to GE to acquire the loans last year and aims to run down the book over time at a profit.

The split mortgage will be available to Pepper’s borrowers who are in full-time employment but are unable to meet the repayments on their mortgages. In line with most other lenders in the marketplace, Pepper has decided not to charge interest on the warehoused portion of the loan.

Speaking to The Irish Times, Paul Doddrell, Pepper's chief executive in Ireland, said it has identified an initial group of 200 customers for the split mortgage product.

“It’s a good product,” he said. “It gives an incentive to borrowers, particularly as their situation improves and they have the ability to pay more.”

Mr Doddrell said Pepper was also working on an assisted voluntary sale scheme for some customers in arrears with their mortgages.

“It has worked well in the UK and it’s a good alternative in situations where litigation is the only choice available,” he said. About 30 Pepper customers are being considered for this scheme.

Pepper entered the Irish market in 2012 and employs about 150 staff in Shannon and Dublin. It has won contracts with Carval Investors and Danske Bank to manage certain Irish loan portfolios.

In July, the National Asset Management Agency chose Pepper and Serco to manage the portfolio of personal and residential mortgage loans on IBRC's books that are likely to be transferred to the agency. These relate largely to Irish Nationwide, which was merged with Anglo Irish Bank to form IBRC. The portfolio is expected to comprise loans with an aggregate nominal par value of €1.8 billion.

These will transfer to Nama at the end of the year if the special liquidators of IBRC can find a buyer for them in the meantime.

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times