1 00:00:03,430 --> 00:00:06,310 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. 2 00:00:06,660 --> 00:00:09,730 Sean Aylmer: It's what every borrower in Australia wants to know. When 3 00:00:09,730 --> 00:00:12,270 Sean Aylmer: will interest rates start rising? For the last few years, 4 00:00:12,270 --> 00:00:14,240 Sean Aylmer: it's been a very good time to be a borrower 5 00:00:14,300 --> 00:00:17,350 Sean Aylmer: in Australia, but will that keep going? It's not just 6 00:00:17,350 --> 00:00:19,200 Sean Aylmer: a record low interest rate, it's also the amount of 7 00:00:19,210 --> 00:00:22,380 Sean Aylmer: competition in the lending market. One of our supporters here 8 00:00:22,380 --> 00:00:24,670 Sean Aylmer: at Fear and Greed is Pepper Money. Over the last 9 00:00:24,680 --> 00:00:27,700 Sean Aylmer: 20 years, we've witnessed the rise of non-bank lending and 10 00:00:27,700 --> 00:00:30,020 Sean Aylmer: Pepper Money is one of the original groups providing more 11 00:00:30,020 --> 00:00:33,950 Sean Aylmer: competition and access to funding. Barry Saoud is the general 12 00:00:33,950 --> 00:00:37,110 Sean Aylmer: manager of mortgage and commercial lending at Pepper Money. Barry, 13 00:00:37,110 --> 00:00:38,190 Sean Aylmer: welcome to Fear and Greed. 14 00:00:38,440 --> 00:00:39,810 Barry Saoud: Thanks Sean. Glad to be here. 15 00:00:40,140 --> 00:00:42,240 Sean Aylmer: How do you characterise the last 18 months or so? 16 00:00:42,590 --> 00:00:43,240 Sean Aylmer: Pretty crazy. 17 00:00:43,570 --> 00:00:46,210 Barry Saoud: Yeah, you're absolutely right, Sean. It has been a very 18 00:00:46,210 --> 00:00:49,409 Barry Saoud: turbulent sort of 18 months, whether it's COVID, you've got 19 00:00:49,409 --> 00:00:53,229 Barry Saoud: the Ukraine current crisis, you've got the flooding so it 20 00:00:53,229 --> 00:00:55,810 Barry Saoud: has been a very difficult time for both the general 21 00:00:55,810 --> 00:00:58,610 Barry Saoud: markets, but also the home mortgages as well as sort 22 00:00:58,610 --> 00:00:59,940 Barry Saoud: of the borrowers as well. 23 00:01:00,030 --> 00:01:01,860 Sean Aylmer: So how do you see it playing out over the 24 00:01:01,860 --> 00:01:04,619 Sean Aylmer: next 12 months or so, the property market. We've seen 25 00:01:04,620 --> 00:01:09,130 Sean Aylmer: these extraordinary increases in prices, not just in capital cities 26 00:01:09,130 --> 00:01:11,709 Sean Aylmer: but regional areas as well. What do you think will 27 00:01:11,709 --> 00:01:14,539 Sean Aylmer: happen over the next 12 months? Surely that can't continue. 28 00:01:14,959 --> 00:01:17,979 Barry Saoud: Yeah, I would agree with you. I don't suspect that 29 00:01:17,980 --> 00:01:21,069 Barry Saoud: the property prices will continue at the rate of growth that 30 00:01:21,069 --> 00:01:23,760 Barry Saoud: it has been. You've seen over the last two years 31 00:01:23,760 --> 00:01:27,259 Barry Saoud: sort of property growth in certain capital cities reach north 32 00:01:27,260 --> 00:01:30,240 Barry Saoud: of 30 to 40%. What I do expect and what 33 00:01:30,240 --> 00:01:33,380 Barry Saoud: the forecast is, is that we expect to see a 34 00:01:33,380 --> 00:01:36,830 Barry Saoud: slight increase. There will be probably a 5-6% increase in property 35 00:01:36,830 --> 00:01:39,800 Barry Saoud: prices this year and I think you're more focused on the 36 00:01:39,800 --> 00:01:43,120 Barry Saoud: flight to quality properties and there'll be an increase on those, 37 00:01:43,209 --> 00:01:46,880 Barry Saoud: emphasis on those livability properties but I expect that there 38 00:01:46,880 --> 00:01:50,010 Barry Saoud: will start to be a drop and a correction towards back half 39 00:01:50,010 --> 00:01:53,950 Barry Saoud: of this year and next year. People are predicting a drop of 40 00:01:53,950 --> 00:01:57,200 Barry Saoud: about five to ten to sometimes 15% and I think 41 00:01:57,200 --> 00:02:02,590 Barry Saoud: that's all, there's that inverse correlation between interest rates rising 42 00:02:02,660 --> 00:02:06,380 Barry Saoud: and the drop in property prices which I suspect that 43 00:02:06,380 --> 00:02:08,340 Barry Saoud: there will be that correction at the back half of 44 00:02:08,340 --> 00:02:08,810 Barry Saoud: this year. 45 00:02:09,290 --> 00:02:11,680 Sean Aylmer: Okay. So is that on the back of higher interest rates? 46 00:02:12,010 --> 00:02:14,570 Barry Saoud: Yes, I definitely think it will be on the back 47 00:02:14,570 --> 00:02:18,369 Barry Saoud: of higher interest rates. I suspect that there will be 48 00:02:18,570 --> 00:02:20,980 Barry Saoud: not only with the rise in interest rates, that inverse 49 00:02:20,980 --> 00:02:25,420 Barry Saoud: correlation, I do expect that housing prices with the demand 50 00:02:25,430 --> 00:02:28,450 Barry Saoud: will start to drop and as the time in terms 51 00:02:28,450 --> 00:02:31,710 Barry Saoud: of immigration starts to open up, I expect that there 52 00:02:31,710 --> 00:02:34,149 Barry Saoud: will start to be an increase in the demand, but 53 00:02:34,150 --> 00:02:35,570 Barry Saoud: I don't see that in the short term. 54 00:02:35,960 --> 00:02:37,990 Sean Aylmer: Okay. Now one of the key areas for Pepper Money 55 00:02:37,990 --> 00:02:43,070 Sean Aylmer: is home loans for underserved customer segments. Who are those customers? 56 00:02:43,550 --> 00:02:46,180 Barry Saoud: Yeah, it's a great question and it's something that, who 57 00:02:46,180 --> 00:02:49,270 Barry Saoud: is the underserved and what does it mean? But for us, 58 00:02:49,560 --> 00:02:52,490 Barry Saoud: what it means is that we like to lend across 59 00:02:52,490 --> 00:02:56,019 Barry Saoud: a broad range of customer sets. It's where the traditional 60 00:02:56,020 --> 00:02:59,220 Barry Saoud: banks don't generally serve those customers and they are your 61 00:02:59,220 --> 00:03:04,450 Barry Saoud: self employed, your contractors, your casual employees, or those customers 62 00:03:04,450 --> 00:03:07,060 Barry Saoud: that may have missed a default on the home loan 63 00:03:07,060 --> 00:03:10,559 Barry Saoud: because of a life event and that could be illness, sickness, 64 00:03:10,560 --> 00:03:14,610 Barry Saoud: it could be divorce so it really is a broad range, 65 00:03:14,610 --> 00:03:17,280 Barry Saoud: a set of customers that don't fit the mould of 66 00:03:17,280 --> 00:03:21,010 Barry Saoud: your traditional banking lending criteria and it's where we at 67 00:03:21,010 --> 00:03:24,660 Barry Saoud: Pepper really try and focus and really believe that everyone 68 00:03:24,660 --> 00:03:28,470 Barry Saoud: deserves home ownership and the right to an entitlement to 69 00:03:28,470 --> 00:03:29,100 Barry Saoud: a mortgage. 70 00:03:29,389 --> 00:03:32,940 Sean Aylmer: Okay. That's a massive group of people I suspect and 71 00:03:32,940 --> 00:03:35,370 Sean Aylmer: when we talk about the banks, we talk about serviceability 72 00:03:35,370 --> 00:03:39,310 Sean Aylmer: buffers and capital requirements and things like that. Is it the fact 73 00:03:39,310 --> 00:03:43,440 Sean Aylmer: that Pepper Money isn't actually an authorised deposit taking institution, 74 00:03:43,440 --> 00:03:47,210 Sean Aylmer: isn't a bank, it has greater flexibility in those sorts 75 00:03:47,210 --> 00:03:49,990 Sean Aylmer: of areas that enables it to provide these loans? 76 00:03:50,550 --> 00:03:54,010 Barry Saoud: No, not necessarily. I think the question where we as 77 00:03:54,010 --> 00:03:57,330 Barry Saoud: a non-bank and a leading non-bank in this space, it's 78 00:03:57,330 --> 00:04:00,490 Barry Saoud: all our loans are underwritten by the responsible lending requirements 79 00:04:00,490 --> 00:04:03,670 Barry Saoud: and we are regulated by ASIC (Australian Securities and Investments Commission) so the difference is 80 00:04:03,670 --> 00:04:07,910 Barry Saoud: that our funding doesn't come from the traditional deposits of banks. 81 00:04:08,180 --> 00:04:11,350 Barry Saoud: Where we believe we make a difference is we are really 82 00:04:11,350 --> 00:04:15,330 Barry Saoud: into price for that risk where your ordinary consumer, where 83 00:04:15,330 --> 00:04:17,710 Barry Saoud: they go to a bank, there is that cookie cutter 84 00:04:17,710 --> 00:04:22,550 Barry Saoud: approach so our ability to individual look at borrower circumstance 85 00:04:22,610 --> 00:04:26,400 Barry Saoud: really sets us apart and that's where effectively we're able 86 00:04:26,400 --> 00:04:30,240 Barry Saoud: to lend based on the individual circumstances of that borrower. 87 00:04:30,550 --> 00:04:33,940 Sean Aylmer: Okay. And then your money then comes through the Residential 88 00:04:34,150 --> 00:04:35,880 Sean Aylmer: Mortgage Backed Securities market? 89 00:04:36,100 --> 00:04:37,080 Barry Saoud: Yeah, that's correct. 90 00:04:37,330 --> 00:04:39,740 Sean Aylmer: Which it seems is opening up again because that was 91 00:04:39,920 --> 00:04:41,790 Sean Aylmer: sort of well had been closed for a while though 92 00:04:42,060 --> 00:04:46,430 Sean Aylmer: I saw figures recently that investors are increasingly happy to 93 00:04:46,540 --> 00:04:50,909 Sean Aylmer: provide or trust people like Pepper Money and buy those Resi- 94 00:04:50,910 --> 00:04:53,789 Sean Aylmer: Backed Mortgage Securities which is a good thing for you 95 00:04:53,790 --> 00:04:54,710 Sean Aylmer: guys presumably? 96 00:04:55,089 --> 00:04:58,050 Barry Saoud: Yeah, that's absolutely right. I think we at Pepper Money 97 00:04:58,050 --> 00:05:00,510 Barry Saoud: have got a 21 year sort of proven track record 98 00:05:00,510 --> 00:05:03,880 Barry Saoud: of operating in this space and that's through a range 99 00:05:03,880 --> 00:05:07,060 Barry Saoud: of market cycles so we get our funding and access 100 00:05:07,060 --> 00:05:11,159 Barry Saoud: our funding through that RMBS (Residential Mortgage-Backed Security) program and the investors are 101 00:05:11,160 --> 00:05:13,680 Barry Saoud: confident in what we do and how we do it 102 00:05:14,010 --> 00:05:17,310 Barry Saoud: and also have confidence in that whole non- bank sector. 103 00:05:17,690 --> 00:05:21,610 Sean Aylmer: Yeah. Okay. It's incredibly competitive sector though. I mean, h as 104 00:05:21,610 --> 00:05:23,120 Sean Aylmer: it ever been this competitive? 105 00:05:23,520 --> 00:05:26,730 Barry Saoud: You're absolutely right. It is a very competitive sector at 106 00:05:26,730 --> 00:05:30,360 Barry Saoud: the moment. You've got new sort of non- banks entering 107 00:05:30,360 --> 00:05:34,750 Barry Saoud: into the market. You've got fintechs so it's probably the 108 00:05:34,750 --> 00:05:39,040 Barry Saoud: rising competition has definitely intensified over the last number of 109 00:05:39,040 --> 00:05:41,380 Barry Saoud: years but I think it's a great thing. The fact 110 00:05:41,380 --> 00:05:43,989 Barry Saoud: that we've got more competition, whether it's from your non- 111 00:05:43,990 --> 00:05:48,969 Barry Saoud: banks, your credit unions, your fintechs, it only serves to 112 00:05:49,020 --> 00:05:54,310 Barry Saoud: increase in your product innovation, providing a better customer experience 113 00:05:54,360 --> 00:05:55,950 Barry Saoud: or a broker experience so- 114 00:05:55,951 --> 00:05:55,952 Sean Aylmer: Yep. 115 00:05:55,952 --> 00:05:59,430 Barry Saoud: ... it only leads to positive signs for the economy 116 00:05:59,430 --> 00:06:01,890 Barry Saoud: as a whole, but more importantly, the borrower. 117 00:06:02,410 --> 00:06:04,520 Sean Aylmer: Yeah, absolutely. I think the customer is the person who 118 00:06:04,520 --> 00:06:07,100 Sean Aylmer: wins out in all this. Stay with me, Barry we'll 119 00:06:07,100 --> 00:06:08,089 Sean Aylmer: be back in a minute. 120 00:06:12,620 --> 00:06:14,990 Sean Aylmer: I'm speaking to Barry Saoud, general manager of mortgage and 121 00:06:14,990 --> 00:06:18,060 Sean Aylmer: commercial lending at Pepper Money. I just want to ask 122 00:06:18,060 --> 00:06:21,469 Sean Aylmer: you about first home buyers. It seems pretty tough to 123 00:06:21,470 --> 00:06:23,670 Sean Aylmer: get into the market if for no other reason, than 124 00:06:24,110 --> 00:06:26,820 Sean Aylmer: you need a massive deposit to actually pay the price 125 00:06:26,820 --> 00:06:28,330 Sean Aylmer: of some of the homes that are going up at 126 00:06:28,330 --> 00:06:30,660 Sean Aylmer: the moment. What are you seeing in that first home 127 00:06:30,660 --> 00:06:34,370 Sean Aylmer: buyer market? And then from that I wouldn't mind talking 128 00:06:34,690 --> 00:06:35,830 Sean Aylmer: about mortgage insurance. 129 00:06:36,260 --> 00:06:38,690 Barry Saoud: Yeah. Great. It's a great question and it's something that's 130 00:06:38,690 --> 00:06:42,469 Barry Saoud: very topical no doubt at the moment given housing affordability, 131 00:06:42,630 --> 00:06:45,440 Barry Saoud: particularly in the capital cities can be a barrier to 132 00:06:45,440 --> 00:06:48,839 Barry Saoud: entry for your first home buyer. So we have seen 133 00:06:48,860 --> 00:06:54,160 Barry Saoud: that it's very difficult for your ordinary borrower and your, in particular, 134 00:06:54,160 --> 00:06:56,980 Barry Saoud: your first home buyer to crack the market where they 135 00:06:56,980 --> 00:07:00,869 Barry Saoud: don't have the necessary deposit savings. We are supportive of 136 00:07:00,870 --> 00:07:03,210 Barry Saoud: this and some recent New South Wales government and Victorian 137 00:07:03,210 --> 00:07:06,900 Barry Saoud: government schemes around a government contribution for the house deposit 138 00:07:07,010 --> 00:07:09,920 Barry Saoud: in return for some equity in the property. We're also 139 00:07:09,920 --> 00:07:12,970 Barry Saoud: seeing some lenders try and innovate in this space, whether 140 00:07:12,980 --> 00:07:16,100 Barry Saoud: it's a shared equity product loan, we at Pepper are really 141 00:07:16,100 --> 00:07:19,790 Barry Saoud: supportive of that first home buyer market. We've introduced a 142 00:07:19,790 --> 00:07:24,660 Barry Saoud: product where up to 85%, no LMI (Lenders Mortgage Insurance) so it's really great 143 00:07:24,660 --> 00:07:26,990 Barry Saoud: that lenders are trying to respond and come up with 144 00:07:27,040 --> 00:07:30,670 Barry Saoud: product innovation to really try and solve this housing affordability 145 00:07:30,670 --> 00:07:34,400 Barry Saoud: crisis and give that first home buyer that opportunity to 146 00:07:34,400 --> 00:07:36,330 Barry Saoud: get into this competitive property market. 147 00:07:36,600 --> 00:07:38,730 Sean Aylmer: Okay. And you mentioned the acronym LMI, which is the 148 00:07:38,730 --> 00:07:43,700 Sean Aylmer: Lenders Mortgage Insurance. Is that something that people are using 149 00:07:43,700 --> 00:07:45,980 Sean Aylmer: more and more because they can't get to the 85% 150 00:07:45,980 --> 00:07:48,380 Sean Aylmer: in your case, but 80% in many other cases, they 151 00:07:48,380 --> 00:07:50,050 Sean Aylmer: just don't have a big enough deposit? 152 00:07:50,420 --> 00:07:54,860 Barry Saoud: Yes. That's absolutely right. LMI or Lenders Mortgage Insurance, it's 153 00:07:54,860 --> 00:07:57,330 Barry Saoud: paid to the lenders to give them security on that 154 00:07:57,330 --> 00:08:01,920 Barry Saoud: borrowing profile. We are seeing an increase in loans taken 155 00:08:01,950 --> 00:08:05,730 Barry Saoud: above 80% or 85% of the property value. It's a 156 00:08:05,730 --> 00:08:08,520 Barry Saoud: good option for borrowers that are trying to get into 157 00:08:08,520 --> 00:08:12,080 Barry Saoud: the market and it absolutely supports the first home buyer 158 00:08:12,080 --> 00:08:14,930 Barry Saoud: to enter into the market where they don't have the 159 00:08:14,930 --> 00:08:18,440 Barry Saoud: ability to raise that deposit in the short term. 160 00:08:18,820 --> 00:08:22,340 Sean Aylmer: Okay. Now Barry you also oversee commercial lending at Pepper. 161 00:08:22,340 --> 00:08:23,940 Sean Aylmer: What's that market looking like? 162 00:08:24,310 --> 00:08:27,750 Barry Saoud: Yeah. And that commercial lending market is a growing market. 163 00:08:27,810 --> 00:08:31,240 Barry Saoud: We are seeing business confidence grow and that's on the 164 00:08:31,240 --> 00:08:34,020 Barry Saoud: back of the impact of COVID and what we have 165 00:08:34,020 --> 00:08:37,970 Barry Saoud: seen is that traditional borrower profile has changed. So as 166 00:08:37,970 --> 00:08:41,730 Barry Saoud: a consequence, we are seeing an increase in your self- employed, 167 00:08:41,900 --> 00:08:45,059 Barry Saoud: we are seeing an increase in commercial investors trying to 168 00:08:45,059 --> 00:08:50,200 Barry Saoud: buy commercial properties so we expect that confidence will continue. 169 00:08:50,400 --> 00:08:52,210 Barry Saoud: There may be a bit of dampening with the global 170 00:08:52,210 --> 00:08:56,699 Barry Saoud: conditions and the recent devastating funds, but we expect that the 171 00:08:56,880 --> 00:09:00,260 Barry Saoud: commercial lending market will continue to grow and it provides 172 00:09:00,260 --> 00:09:03,719 Barry Saoud: a great opportunity for small to medium size enterprise to 173 00:09:03,720 --> 00:09:07,470 Barry Saoud: get into the market with a lending product that's flexible 174 00:09:07,580 --> 00:09:11,410 Barry Saoud: and is able fast to enable them to access whether it's there 175 00:09:11,720 --> 00:09:16,150 Barry Saoud: to buy a commercial property or industrial site or alternatively, a 176 00:09:16,150 --> 00:09:21,179 Barry Saoud: retail site and what we are seeing is your typical mum 177 00:09:21,179 --> 00:09:23,679 Barry Saoud: and dad borrower and whether that's through a Self- Managed 178 00:09:23,679 --> 00:09:27,210 Barry Saoud: Super(annuation) Fund or whether they just want to try a different 179 00:09:27,210 --> 00:09:29,890 Barry Saoud: type of market. We are seeing an increase in that 180 00:09:29,890 --> 00:09:31,360 Barry Saoud: commercial lending space. 181 00:09:31,740 --> 00:09:35,640 Sean Aylmer: Are people in commercial lending more likely to look for 182 00:09:35,640 --> 00:09:37,810 Sean Aylmer: better deals? I mean, I think of the mortgage market 183 00:09:38,340 --> 00:09:43,260 Sean Aylmer: and it's relatively difficult to move your mortgage. It's probably easier now than it was 184 00:09:43,260 --> 00:09:45,120 Sean Aylmer: two or three years ago to be honest, but with 185 00:09:45,120 --> 00:09:49,709 Sean Aylmer: these great deals from different organisations, it's well worth looking 186 00:09:49,710 --> 00:09:52,200 Sean Aylmer: around and shopping around and getting the best deal for you. 187 00:09:52,580 --> 00:09:55,069 Sean Aylmer: I'm just wondering if that's the same in commercial lending, do 188 00:09:55,080 --> 00:09:57,750 Sean Aylmer: SMEs (Small and Medium-sized Enterprises) change their lenders very often? 189 00:09:58,210 --> 00:10:01,160 Barry Saoud: Not as much as your traditional mortgage market. 190 00:10:01,480 --> 00:10:01,500 Sean Aylmer: Yeah. 191 00:10:01,570 --> 00:10:06,440 Barry Saoud: But the appetite of SMEs is, and their quite clear focus 192 00:10:06,440 --> 00:10:10,880 Barry Saoud: is all around that credit certainty and a fast credit 193 00:10:10,880 --> 00:10:14,720 Barry Saoud: decisioning so that particular profile of an SME market is 194 00:10:14,720 --> 00:10:18,570 Barry Saoud: different and lenders are really trying to evolve and innovate 195 00:10:18,570 --> 00:10:21,710 Barry Saoud: in this space to really address the needs of that SME 196 00:10:22,170 --> 00:10:23,030 Barry Saoud: market. So- 197 00:10:23,030 --> 00:10:23,031 Sean Aylmer: Yeah. 198 00:10:23,031 --> 00:10:26,429 Barry Saoud: ... we are seeing a diverse product range. We are 199 00:10:26,429 --> 00:10:29,200 Barry Saoud: seeing changes in the way in which we distribute that 200 00:10:29,200 --> 00:10:33,140 Barry Saoud: credit, but it's an interesting market that the needs of 201 00:10:33,140 --> 00:10:36,829 Barry Saoud: that SME are very different to your ordinary consumer on 202 00:10:36,830 --> 00:10:39,949 Barry Saoud: your mortgage side and we at Pepper Money in particular, 203 00:10:40,030 --> 00:10:43,679 Barry Saoud: are really focused on really trying to address those and 204 00:10:43,740 --> 00:10:47,459 Barry Saoud: most importantly, for those borrowers in that SME market is around 205 00:10:47,780 --> 00:10:52,500 Barry Saoud: providing a market leading turnaround time, giving understanding who that SME 206 00:10:53,150 --> 00:10:57,270 Barry Saoud: is, understanding their balance sheet and profitability, and really provide 207 00:10:57,370 --> 00:11:00,670 Barry Saoud: a really a tailored product to suit their needs. 208 00:11:00,950 --> 00:11:02,809 Sean Aylmer: Barry, thank you for talking to Fear and Greed. 209 00:11:03,040 --> 00:11:03,710 Barry Saoud: Thanks Sean. 210 00:11:04,030 --> 00:11:06,750 Sean Aylmer: That was Barry Saoud, general manager of mortgage and commercial 211 00:11:06,750 --> 00:11:10,170 Sean Aylmer: lending at Pepper Money. This is a Fear and Greed daily interview. 212 00:11:10,170 --> 00:11:12,150 Sean Aylmer: Join me every morning for the full Fear and Greed 213 00:11:12,150 --> 00:11:14,400 Sean Aylmer: podcast with all the business news you need to know. 214 00:11:14,670 --> 00:11:16,210 Sean Aylmer: I'm Sean Aylmer, enjoy your day.