Non-bank boss on the prime mortgage cycle, encroaching SMSF lending competition, and the prospect of delisting from the ASX
Pepper Money is well and truly in a prime mortgage cycle right now.
Annual results published this Thursday showed a 161% year-on-year increase in prime lending to $4.6 billion for the 12 months to 31 December.
It is reflective of wider market trends, with the major banks increasing their prime exposure and getting more aggressive in the space.
According to Pepper Money chief executive Mario Rehayem (pictured), that’s a good thing. “We are always a beneficiary of a growing market,” he told MPA. As the total addressable market increases, “Pepper is always positioned exceptionally well to capture that”, he added.
But it’s a mixed blessing whenever the mortgage cycle goes prime. In Pepper Money’s instance, it coincided with a 12-basis-point dip in mortgage net interest margins (NIMs) in the reporting period.
This dip in profitability was to be expected, said Rehayem.
“Every time we've made a conscious decision to take on prime, you will see a slight compression in margin,” he said. “But what we have always aimed for, because we have a diversified business, is that we can then lean into the asset finance business to recoup.”
True to his word, Pepper Money’s thriving asset finance business saw a 31-basis-point NIM improvement in the year.
It is commendable that Pepper Money is able to move with the tide in such a fluid way.
“When the cycle is there, we will take advantage of that,” said Rehayem. “But at the same time, we are very prudent in what we write. If we feel that the margins compressed too far, then we would look to probably grow more in our (commercial real estate) and non-conforming… we are pretty much very fluid, or should I say more like a chameleon to the market.”
Rehayem has baked this chameleonic approach into Pepper Money’s DNA over his past 15 years at the helm. “For us, it's about preparing your business. To be able to accommodate as opportunities come, as opposed to trying to react to an opportunity coming your way.”
There’s also a risk-reward payoff whenever a lender takes on more prime exposure. Sure, margins are slimmer, but defaults are also lower compared to near-prime loans. It's a fine balancing act that Pepper Money has honed over numerous market cycles.
An emerging SMSF lending threat
Pepper Money’s SMSF lending product did good business in 2025. Originations more than doubled and contributed 7% of the group’s total mortgage originations. That was up from 6% in 2024.
Non-banks like Pepper Money became the de facto SMSF lenders after practically all major traditional lenders left the market in the late 2010s amid heightened security.
But recent developments suggest they shouldn't be getting complacent.
Earlier this week, AMP Bank became the first high-profile bank to reenter the SMSF lending market since last-decade’s mass exit. While AMP Bank is a sole outlier for now, it could be a portent for more to come.
Rehayem does not sound fussed.
“there's always going to be competition,” he said, adding: “We will always find a service proposition, a niche in the market to be able to single out and be the draw card in that area. Last year we had a 106% increase year on year and represented 7% of our total originations. That alone gives you an indication that we're doing something right.
“We've listened to our partners, we've listened to our brokers and our customers, and you will always find a way to be able to create a niche in your proposal or offerings. That's what we're in business for. That's what non-banks do best.”
A lot of it comes down to broker relationships, through which 97% of Pepper Money’s volumes originate.
“We are definitely broker focused,” said Rehayem. "If anything, we are constantly looking for ways to improve our positioning, our processes and our products with the brokers. We've always started off as a broker-led business in 2000, when we first started 26 years ago. And that hasn't stopped.”
The big question
Today’s results went down fairly well on the ASX, with shares jumping around 1.7% at the time of writing.
But there’s a lingering question to address.
Earlier this month, the group confirmed that it is in takeover talks with investment manager Challenger Limited. If a deal goes ahead, Pepper Money would be removed from the stock market, just five years after relisting in 2021.
So is this the last set of annual results we’ll ever see from an ASX-listed Pepper Money?
Rehayem wasn’t getting roped into the matter. “We have this saying internally: the deal's not done until it's done. When the time comes, then I'll be able to say, yes, it was, or it wasn't.”
