Pepper Advantage, the mortgage services provider used by a number of investment funds for Irish loans acquired after the financial crash, has started to cut variable rates months after the European Central Bank (ECB) had begun to lower official rates.
The company has begun notifying over 9,000 residential mortgage customers of decreases in their variable mortgage rates over the coming days – representing almost 53 per cent of its 17,000 variable-rate customers, it said in a statement on Tuesday.
Rate decreases will range from 0.25 of a percentage point to 1 point, and the majority of the customers receiving this initial reduction will receive decreases of between 0.35-0.5 of a point.
It will bring the average rate for such customers down from about 7 per cent currently. It is understood that it will reduce its highest rate, currently being charged on some 100 legacy sub-prime loans Pepper took over after the crash, to about 10 per cent.
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“The current reductions apply to those Pepper Advantage customers who have seen the highest increases to date since the ECB incrementally started increasing rates in July 2022,” the company said.
“Pepper continues to review the situation for remaining customers and subject to further ECB rate reductions, expects to be in a position to notify more customers of reductions in their variable rates in due course.”
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The ECB cut its key deposit rate by a quarter of a point in June and, again, by the same amount in September. It is widely expected by economics and debt market investors to reduce its deposit rate, currently at 3.5 per cent, by a further quarter of a point on Thursday.
The central bank had hiked its benchmark rate from zero to a high of 4 per cent between July 2022 and September 2023 amid a fight against runaway inflation.
[ Tens of thousands of tracker mortgage holders to benefit from latest ECB rate cutOpens in new window ]
Pepper services about 80,000 Irish mortgages owned by investment funds such as Carval, Goldman Sachs and Pimco. Many of the underlying borrowers have been unable to refinance at lower rates with mainstream lenders because they are considered higher-risk borrowers.
Pepper was a rarity during the period of ECB hikes in passing on the full extent of official rate increases to thousands of non-tracker customers, albeit at a lag. The mainstream banks held back on transmitting all the ECB rises to mortgage holders as their earnings were propped up by also failing to raise rates for most of their deposit customers. Still, some Pepper customers did not receive the full 4 percentage points of rate increases, while others avoided any, according to sources.
Almost all the current Irish mortgage lenders – from AIB, Bank of Ireland and PTSB, to ICS Building Society, Avant Money and newcomers Moco and Nua – have cut rates on various non-tracker products over the past six months, either in anticipation of, or reacting to, ECB rate cuts.
Central Bank deputy governor Derville Rowland told the Oireachtas finance committee last week that her team was “vigilantly watching” the actions of firms servicing loans on behalf of investment firms that had hiked rates to well in excess of market norms.
“Rates are decisions for the lenders themselves,” Ms Rowland said. “However, we would expect to see, according to the different pricing strategies and approaches, a symmetry in behaviour that when rates reduce, those reductions are passed on to the customer. We are engaging with the firms on that basis.”
Financial markets are currently pricing in not only a 0.25 of a point cut in ECB rates this Thursday, but a follow-up reduction in December as inflation risks are easing faster than previously expected. That would leave its deposit rate at 3 per cent at the year-end.
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