Pepper raises rates on 9,500 mortgages as average hits 6.3%

Pepper Finance, the mortgage services provider used by a number of investment funds for Irish loans acquired after the financial crash, is increasing rates on about 9,500 home loans on its books as it starts to pass on a portion of recent European Central Bank (ECB) rate hikes.

The increase affects 45 per cent of the 21,000 standard variable rate (SVR) loans it services and increases its average SVR to 6.3 per cent, the company said in a statement on Tuesday.

That compares to about 4 per cent before the ECB started a cycle of interest rate increases last July that has lifted its main lending rate from zero to 3.75 per cent.

Sources said, however, Pepper customers who have borne the brunt of its rate hikes between September and February – resulting in rates of as much as 8 per cent in come cases – are not affected by the latest move.

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Many of those on higher rates had their mortgages split in the wake of the financial crash, with a portion of the loan warehoused, to be paid back at a later date.

The average rate on a new Irish SVR mortgage stood at 4.38 per cent in March, according to the latest industrywide data from the Central Bank.

The latest Pepper move comes as economists largely expect the ECB to add another quarter of a percentage point to official rates this Thursday and increase official borrowing costs again next month.

Pepper is notifying affected customers this week that their SVR will increase by between 0.5 and 1 percentage point.

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“No Pepper variable rate customer has received an increase of the full 3.75 per cent ECB base rate,” Pepper said.

“We are aware that this continues to be a challenging time for many customers,” Pepper said, adding that borrowers concerned about their ability to meet their new mortgage payments should call its customer phone number.

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Pepper services about 80,000 Irish mortgages owned by investment funds such as Carval, Goldman Sachs and Pimco. Many of the underlying borrowers are unable to refinance at lower rates with mainstream lenders because they are considered higher-risk borrowers.

Pepper said that it has written in the past three months to over 2,500 residential mortgage customers on above-average rates. Just under 6 per cent of these have responded to date and provide a so-called standard financial statement (SFS) on their income and outgoings in order for Pepper to assess their affordability.

“We would encourage any of our customers who find themselves with affordability issues to engage with our team and send us an SFS for assessment and our team will explore potential options and solutions for their individual circumstance,” it said.