News: UPDATE 1-Australia's Pepper Group fields $500 mln takeover offer from KKR

(Adds shares, context)

July 5 (Reuters) - Australian non-bank lender Pepper Group Ltd (PEP) said on Wednesday it has received a A$655 million ($498 million) non-binding takeover offer from U.S. buyout firm KKR Credit Advisors LLC.

The indicative offer of A$3.60 per share represented a 4 percent discount to Tuesday's closing price of A$3.75. The bid comes just as signs of stress start to emerge in Australia's previously red-hot housing market.

Mortgage lending is a highly lucrative business and lenders such as Pepper have helped fill a recent void left by the major banks decreasing their exposure to investor loans. The non-bank lender reported a 36 percent expansion in new loans for 2016.

Pepper said in a statement to the Australian Securities Exchange on Wednesday that it had granted KKR exclusive rights to conduct due diligence, and added that negotiations were incomplete.

A KKR spokesman in Australia declined to comment on the bid. Pepper stock dropped 7 percent to A$3.49 in early trade on Wednesday, after surging late on Tuesday due to newspaper reports of an impending bid.

There is intense pressure on the country's biggest banks to slow down lending to speculative property investors.

The nation's household debt-to-income ratio stands at an all-time peak of 189 percent, stoking concerns that debt in the property market will hurt spending elsewhere in the economy.

($1 = 1.3142 Australian dollars)