Pepper Advantage, the mortgage services provider used by a number of investment funds for Irish loans acquired after the financial crash, is to notify 9,000 residential mortgage customers of further decreases in variable rates on their loans next month.
It said on Friday its decision to lower rates for certain customers is linked to rate reductions previously announced by the European Central Bank (ECB) and is based on the criteria set out in Pepper’s variable interest rate policy.
Rate decreases being announced will range from 0.35 per cent to 0.5 per cent. The majority of customers receiving the reduction will see decreases of 0.5 per cent.
The reductions apply to customers who have experienced the highest increases since the ECB implemented ten consecutive rate increases beginning in July 2022.
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.
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.
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 applying all ECB rises to mortgage holders – their earnings were propped up by also failing to raise rates for most deposit customers.
Still, some Pepper customers did not receive the full 4 percentage points of rate increases, while others avoided any, according to sources.
Central Bank governor Gabriel Makhlouf has signalled he has become more cautious in recent weeks on the European Central Bank (ECB) making big rate cuts, particularly as services inflation remains elevated.
The governor said a few weeks ago he would have to see significant data evidence to prompt him to vote for the European Central Bank (ECB) governing council to go for a bigger rate cut than its recent series of quarter-of-a-percentage-point reductions.
Euro zone inflation climbed to an annual rate of 2.3 per cent in November from 2 per cent the previous month, while services prices remained particularly elevated, at 3.9 per cent, according to figures published by Eurostat, the EU’s statistics agency, last month.
Still, the ECB had cut rates three times since June and is widely expected by economists to follow up with a fourth reduction next week.
Pepper said it would continue to review the situation for remaining variable rate customers and expects to be able to announce further variable rate reductions in due course subject to further ECB rate reductions.
Pepper saw its operating profit fall last year as it took a €4.5 million hit for erroneously undercharging a group of mortgage holders on behalf of lenders.
The company disclosed in February it had undercharged some 2,500 tracker and variable-rate mortgages after telling customers their interest repayments would increase in line with ECB rate hikes, but then failing to bill them the correct amount.
The financial hit pushed the company’s operating profit down almost 17 per cent to €8.75 million last year, according to its latest annual financial statement filed with the Companies Registration Office (CRO) last month.
Its client assets under management fell almost 2 per cent to €22.8 billion last year, leaving it with 130,000 residential, commercial and consumer loans.
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