Pepper unveils interest rate discount scheme for struggling mortgage customers

Pepper Advantage, the mortgage services provider used by a number of investment funds for Irish loans acquired after the financial crash, is set to unveil an alternative repayment arrangement for struggling customers that could see the interest rate on their loans reduced by up to half.

The company, which services more than 100,000 loans in the State, many of them tracker mortgages, said on Friday that it was “closely monitoring” the impact of rising central interest rates on its tracker and variable mortgage customers and their ability to meet monthly repayments.

From Monday, Pepper tracker and variable mortgage customers in financial difficulty will be eligible for the alternative repayment arrangement, which will see the interest rate on their mortgage fixed at a discounted rate for an agreed period of up to two years. This would mean that neither the interest rate nor the size of the monthly repayment would go up or down over the agreed time frame.

[ Irish inflation climbs to 6.3% in August as mortgage interest rates soar ]

Pepper said the arrangement was a “new solution” and not a new mortgage product. As such, it will only be available to customers if an individual assessment of their finances demonstrates the solution will address the affordability of their repayments. It is understood that once applied, the arrangement could reduce the interest rate on affected loans by up to half.

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In July, Pepper announced it would add 0.5-1.25 percentage points to the cost of most of the 21,000 variable mortgages it services. The average rate across Pepper’s loan book stood at 6.3 per cent before the move and is now at about 7 per cent. This compares with the average variable rates of 3.8-3.95 per cent offered by Bank of Ireland, AIB and Permanent TSB.

Some tracker mortgage customers have seen the interest rate on their home loan increase by more than 200 per cent since the European Central Bank (ECB) began hiking interest rates in 2022 in its fight against inflation. Tracker rates follow the trajectory of Frankfurt’s main lending rate, which has climbed from 0.5 per cent in July 2022 to 4.25 per cent in August, a two-decade high.

[ Is the time right to abandon my rising tracker mortgage? ]

“We are closely monitoring the impact rising interest rates are having on certain tracker mortgage customers,” said Cormac Ryan, chief executive of Pepper Advantage. “Some of these mortgage loans are interest-only mortgages, meaning these customers have been the most impacted by rising rates and escalating monthly payments.

“It is a situation we are keeping under constant review, and solutions such as this, combined with ongoing engagement between us and our customers, will help during this challenging period. We want to help customers and work closely with them to find a solution that resolves arrears or keeps them out of an arrears situation.”

In Government and across the financial services sector, there is growing concern about the potential for rising rates to put mortgage customers into arrears.

As part of its Dealing with Debt campaign, the Banking and Payments Federation of Ireland (BPFI) this week launched an initiative to allow struggling mortgage holders to move their loan from credit servicing firms to mainstream banks to escape higher interest charges.

Mr Ryan said it was “a very challenging time for many people” and that Pepper was working closely with the BPFI on its campaign. “We have also been encouraging anybody concerned about their ability to meet future payments or [anyone who is] already in arrears to contact us immediately so we can help using the range of solutions we have available, which now include this new solution,” he said. “It is never too late to contact us and our team is here to help.”