Pepper Money continues to look for diversification opportunities to offset difficult conditions in the Australian mortgage market, announcing on Friday that it will buy HSBC Bank’s New Zealand mortgage portfolio. Pepper said it has entered into a binding agreement with HSBC to acquire a prime residential mortgage portfolio with a total balance of around NZ$1.4 billion. The cost of the acquisition was not disclosed. Pepper started servicing mortgages in New Zealand in 2011, when it acquired GE Capital’s Australian and New Zealand mortgage business. In 2019, it launched a full range of residential mortgages in NZ, including prime, near-prime and specialist loans. Pepper Money chief executive Mario Rehayem said in a statement: “This acquisition will see the business continue to build scale in New Zealand”. Pepper had a tough time in the local mortgage market in the first half of the year, as it struggled to keep up with banks chasing market share with cashbacks and discounted rates. It originated A$1.7 billion of mortgages in the six months to June – down from $2.7 billion in the December half and $4.1 billion in the June half last year. At the end of June, its mortgage book was worth $12.4 billion – down from $13.5 billion in the December half and $14 billion in the June half last year. Its response has been to diversify. It has turned its attention to its asset finance business and now its New Zealand operation. In another development last week, Pepper issued A$850 of mortgage-backed securities in its latest RMBS transaction, PRS38. The margin ranged from 150 basis points over the one-month bank bill swap rate on the A1 notes to 790 bps on the F notes. Rehayem said demand was strong, allowing Pepper to upsize the issue from $750 million at launch to $850 million. Since the beginning of the year, Pepper has completed four PRS securitisation transactions, raising a total of $3.2 billion.