US-based private equity players have picked the perfect time to enter the Australian mortgage market by capitalising on regulatory changes and tighter credit.
One global mortgage provider that looks set to bolster its position in the Australian home loan market is Pepper Money.
Last year, the non-bank lender delisted from the ASX after private equity giant KKR became a major shareholder.
Pepper’s Australian CEO, Mario Rehayem, told Mortgage Business that KKR is already looking to maximise the potential in the non-bank’s domestic offering.
“Early signs for us already are introducing more asset classes that we can roll out, which will benefit the business in Australia and across the globe,” Mr Rehayem said.
“We have some exciting new product segments that we will roll out over the next three to four months that we wouldn’t have been able to deliver as quickly as we can now because of the capital constraints we had as a listed company.”
Pepper is an ambitious company that has managed to achieved consistent growth since 2011. Last year, the group grew its mortgage business by 28 per cent, driven by mortgage broker origination and major changes in the lending landscape.
“We are here to service those areas that the banks have shied away from. Either their hands are tied or their bellies are full,” Mr Rehayem said.
“We don’t believe what is happening with the big banks will stop anytime soon. There are going to be huge retractions and their credit appetite will get restricted. It will continue to offer opportunities for us to grow. We thrive on that nimbleness to be able to quickly come out and address the market and fill the void.”
Increased regulatory scrutiny of the banking sector by APRA has forced the ADIs to tighten credit and even pull out of some markets, such as non-resident lending and property developer finance.
“That has created a real opportunity for non-bank lenders, which is a reason why US players are coming in now,” Deloitte financial services partner Heather Baister said.
“They are using their liquidity to exploit gaps in the market, such as foreign income or foreign resident investment into Australia.”
Queensland-based Better Mortgage Management (BMM), which uses Pepper for wholesale funding, is confident about US players entering the space.
“It is great to see interest in the sector from new parties,” BMM managing director Murray Cowan told Mortgage Business.
“The GFC and post-GFC period was tough for all lenders that were not a big four bank, or a subsidiary of the big four, and particularly tough on non-bank lenders,” Mr Cowan said.
“Looking at the size of the groups involved (KKR and Blackstone), their balance sheets could help with additional funding and expanding their loan books.
“The events of 2016 and 2017 have finally seen some market forces moving things in our favour.”