Non-bank lenders gain ground: what Pepper's record half means

Pepper Money's record $6.3 billion first-half lending shows non-bank momentum, and for borrowers outside the standard bank box, that widens the options.

The story most borrowers will hear this week is that home loan applications have fallen across the major banks since the May federal budget. What's getting less attention is the flip side: non-bank lenders like Pepper Money are picking up business at the same time.

The Adviser reports that Pepper Money delivered its strongest half-year originations result on record in the six months to 30 June 2026, with total lending up 40% to $6.3 billion. Mortgage originations alone rose 63% to a record $4.5 billion, and total mortgage applications jumped 35% year-on-year to $9.9 billion. That has happened against a market backdrop where the majors are moving in the opposite direction.

The market split, in numbers

The contrast in inquiry volume is stark. Pepper Money said its own inquiries rose 11% from the May federal budget, while total market inquiries declined 15% over the same period. On the major bank side, NAB reported that total Australian home-lending applications fell 15% in the June quarter and were 16% lower year-on-year. Westpac's average monthly mortgage applications dropped 11% over the June quarter to 29,000, with the post-budget monthly run rate sitting 20% below second-quarter levels. Commonwealth Bank reported applications 17% lower in June than a year earlier, and ANZ said applications had fallen 12% between the May budget and the end of July.

Pepper Money chief executive Mario Rehayem framed the divergence as a mix of borrower behaviour and lender positioning. "Following the federal government's changes to CGT, negative gearing and SMSF residential lending, the market has seen a reduction in new application activity. However, we remain well positioned," he told The Adviser.

For borrowers who assume the major banks are the only real market, the numbers say otherwise. Non-bank lenders are actively competing for volume, and many will accept applications that fit outside a standard bank template — which matters if your income, structure or credit history doesn't tick every box a major bank wants to see.

Where non-banks fit for borrowers

Pepper Money's mortgage book has three tiers: prime, near-prime and specialist. Prime lending accounted for 79% of mortgage originations in the half, up from 70% a year earlier, while non-conforming loans made up the remaining 21%. The weighted interest rate on prime loans was 7.5%, on near-prime loans 7.8%, and on specialist loans 8.9%. That premium on non-prime lending is the price of access — but for borrowers who genuinely cannot clear a major bank's serviceability or credit criteria, it can be the difference between getting a loan and not.

A few common situations where non-bank lending tends to come into play:

- **Self-employed borrowers with variable or non-PAYG income.** Bank policies typically want two years of consistent tax returns; some non-banks work off shorter track records or alternative documentation. - **Recent credit events.** A default that's now cleared, a past hardship arrangement or a payment history blemish will often disqualify a borrower from a major bank while remaining serviceable at a specialist lender. - **Complex ownership structures.** Trust arrangements, SMSF lending and non-resident scenarios all sit outside the standard bank template. - **Investor borrowers repositioning.** Pepper noted a "material shift" of borrowers away from residential SMSF lending toward commercial real estate approvals following the federal budget changes.

If you're weighing whether a non-bank pathway makes sense, running the numbers through a repayment calculator at the higher rates typical of near-prime or specialist products is a useful reality check — the monthly repayment gap between a 6.0% and a 7.8% loan on a $600,000 balance is not trivial. It's also worth thinking about lenders' mortgage insurance thresholds, which the LMI calculator can help you scope out if your deposit is under 20%.

Credit performance is holding up

One of the concerns often raised about non-bank lending is credit quality. Pepper's disclosed figures for the half suggest arrears are moving in the right direction: loans more than 90 days past due represented 1.66% of mortgage assets under management at June 2026, down from 1.89% a year earlier. That's a small but consistent improvement in a period when RBA and major-bank data have flagged rising household stress in some borrower cohorts.

Pepper also announced significant scale changes outside the half-year period. The company migrated a $15.4 billion RAMS home-loan portfolio from Westpac on 1 August as part of a consortium acquisition, bringing total assets under management to close to $40 billion. If the Blackstone-controlled acquisition of HSBC Australia's approximately $36 billion home-loan and personal-loan portfolio completes as expected in the first half of 2027, Pepper is also set to service that book. That's a lot of borrowers whose loans will sit with a non-bank servicer, whether they think of themselves as non-bank customers or not.

What to do with this

For most owner-occupier borrowers with a straightforward income profile, the majors and Macquarie will still offer sharper pricing than Pepper's prime rate implies — the cheapest home loan comparison is the sensible starting point there.

But for anyone whose situation is even slightly outside the standard box — self-employed, investor, credit-event history, non-standard income, unusual structure — the practical takeaway is that the non-bank channel is broader and more active than it was two years ago. That widens the range of realistic options, and it's worth having a broker look at both the bank and non-bank side of the panel rather than assuming a "no" from one major means a "no" everywhere.