Pepper spices up mortgage market with rates for problem borrowers lower than some mainstream lenders

(Published Daily Mail August 4)

Pepper Mortgages, which specialises in loans for problem borrowers is not the cheapest lender - but it has decent rates that might appeal to certain categories of borrower.

For example, self-employed people can have problems getting a loan. It's not impossible but it is more difficult and they may find comfort in going to a lender with a special category of mortgage especially for them.

Pepper’s loan product for the self-employed is not the cheapest deal around but it is far from the dearest either.

Borrowers with poor credit ratings also have a refuge here with a special loan product aimed and them and a better variable rate deal than some banks give their most credit-worthy customers (see table) (And yes, I am talking to you Bank of Ireland)!

Pepper’s normal variable rate loan for non-problem borrowers beats BoI’s hands down, undercutting it by a full percentage point across most categories.

The big disadvantage is Pepper’s 0.5% administration charge (capped at €1800) – an annoying anachronism that most banks did away with years ago.

And lenders with a variable rate on the dear side like Bank of Ireland, PTSB and EBS do offer borrowers 2%-3% of their mortgage amount as a “cashback” incentive upfront which can come in handy.

Yet both factors come nowhere near to making up for the interest rate differential on variable rates over the lifetime of a mortgage.

In fairness, BoI also offers fixed rate loans starting at 3.35%.

A BoI spokesman said: “Seven in 10 new customers and almost nine out of 10 first time buyers chose a fixed rate in the first half of 2016.”

That’s hardly surprising given the interest rate difference! And fixed rates still account for only 19% of its mortgages.

Nearly one in three borrowers are on variable rates that will cost them dearly over the lifetime of a loan.

Like other banks, BoI is targeting newbies with nice deals, at the expense of its loyal customer base, most of whom pay over the odds.

You don’t have to stand for this. Anyone on BoI’s variable rate regime should look at switching. Practically any other lender would be better - AIB or KBC are cheapest. Or even get a BoI fixed-rate loan.

Meanwhile, Pepper’s latest move has also injected competition into the mortgage market further up the value table.

Its mainstream offering for non-problem borrowers, Essential, is now as low as AIB/KBC in some cases (see table).

Pepper’s cuts shake up the market in another way too - by offering hope to the self-employed and those with bad credit ratings.

Prior to Pepper, the self-employed had problems getting a loan anywhere.

Now, after its recent cuts, they have a product tailored for them that rivals the cheapest rates around (Essential Plus).

Borrowers with a bad credit rating hadn’t a hope of getting a mortgage. They do now with Pepper’s Advantage suite of loans.

Now it doesn’t even cost that much more than certain mainstream lenders – and in BoI’s case, sometimes even less.

If that doesn’t shame Bank of Ireland into cutting its rates, nothing will.