Pepper enters mortgage market prompting Bank of Ireland to offer top-up for deposit
The mortgage market is in line for its biggest shake-up in more than a decade with the entry of a new lender - and first-time buyers are set to get a top-up to save for a deposit.
Australian lender Pepper, which manages 50,000 loans here already, is to offer among the most competitive mortgage rates. It is targeting first-time buyers, switchers and those taking out buy-to-let mortgages.
The bank will not have the lowest loan rates in the market, but the entry of a new lender is expected to force other banks to respond with lower rates in time.
Its entry prompted Bank of Ireland to launch a new 10pc bonus for first-time buyers putting money aside for a deposit.
They can save up to €80,000 and will get a 10pc bonus, which would mean a top-up of €8,000.
Bank of Ireland is already offering 2pc of every new mortgage amount borrowed, which is proving so attractive that it was replicated by Permanent TSB in the past two weeks.
Now Pepper, which operates in the British, Spanish and Australian markets, is to challenge the dominance of AIB and Bank of Ireland in the mortgage market here. Its mortgage rates will be as low as 3.55pc for first-time buyers and switchers.
Pepper's Irish boss Paul Doddrell said the lender would be the first to offer products for those refused by other banks.
These will include residential mortgages for those who are self-employed or on a contract and who cannot get a mortgage from mainstream banks.
It will also offer mortgages to those who got into arrears during the downturn but have since returned to full payments.
This is expected to prove highly attractive to thousands of people who lost their jobs and got into arrears for a while, got back on track, but now need to move to a larger home.
The lending rates on these mortgages will be up to 0.75pc higher than Pepper's lending rates for prime borrowers.
Pepper mortgages will only be offered through brokers and there will be an arrangement fee of 0.5pc of the value of the mortgage, up to a maximum of €1,800. This fee can be added to the amount to be borrowed.
The lending will be restricted to the greater Dublin area, Cork, Galway and Limerick for now.
Mr Doddrell said Pepper would also be targeting the switcher market and would have some of the lowest rates for buy-to-let investors.
Pepper has already lent €2.5bn in seven countries. It bought loans offered by GE Money here and manages loans on behalf of Danske Bank and Goldman Sachs and investment funds such as Lone Star.
It is promising approval in principal for borrowers in 30 minutes and full approval in 10 days.
Asked why it was not undercutting lenders here, which have some of the dearest mortgage rates in the eurozone, Mr Doddrell said there was still a "risk premium" for retail lenders who borrow from wholesale markets to do business in Ireland. Pepper does not have access to deposit funding, he said.
But he expects mortgage rates to come down with more competition in the market.
Financial experts said they expected other lenders to respond to the new entrant.
Mortgage expert Karl Deeter, of Irish Mortgage Brokers, said: "The only reason they are coming in is because rates are so high here. But when you get competition back into the market, rates will come down."