Home Loans From Non-Bank Lenders

Non-bank home loans

There's no doubt that the big-four banks take up a gigantic part of Australia's financial ecosystem, and this is definitely true for home loans. According to data released at the end of 2021 from the Australian Prudential Regulation Authority (APRA), the big-four banks collectively hold assets worth nearly $3.8 trillion. It is estimated these four major banks account for up to 80% of the value of home lending in Australia.  

But there is a downward trend away from the big four. So what's going on?

Well, lots of home loan customers have started to look beyond the traditional big-four banks, with a shift towards non-bank lenders. Their competitive interest rates and swift approvals have caught the eye of many borrowers.

Source: APRA, RBA

What is a non-bank lender?

A non-bank lender is simply a lender that isn’t a bank. To be a bank, a lender must be registered as an ADI (authorised deposit-taking institution) with APRA (The Australian Prudential Regulation Authority), which essentially allows institutions to accept customer deposits (term deposits and savings accounts). Non-bank lenders cannot accept customer deposits, which means they cannot accept consumer deposits  (e.g. by offering savings accounts or term deposits) and use the funds to provide home loans, which is generally what banks do. Instead, non-banks typically self-raise the funds required to provide home loans by issuing bonds to institutions and investors.   

Just because non-bank lenders do not have an ADI licence doesn’t mean they aren’t safe or trustworthy. Non-banks still must have an Australian Credit Licence (ACL) and have to comply with many of the same industry and legal codes as the banks, such as: 

• ASIC laws
• The National Consumer Credit Protection Laws
• Australian Consumer Law 
• Privacy Law etc. 

How do non-bank lenders rates and fees compare to other lenders? 

Non-bank lenders offer some good interest rates and low fees on certain products, but this isn’t always the case. There are thousands of home loan products on the market, which means they can also have products with rates and fees on the lower end of the scale. 

There’s no definitive answer as to whether non-banks have better or worse products than other types of lenders – this will depend on the product itself and who’s interested in it. Other types of lenders you’ll see home loans from include: 

• Customer-owned banks: also known as mutual banks, customer-owned banks are owned and operated with the sole purpose of providing banking services to customers rather than generating a profit. They argue this lets them offer better rates and fees to their customers, which can sometimes be the case. 
• The big four banks: the big four banks – ANZ, Commonwealth Bank, NAB and Westpac – are so-called because they take up much of the home loan market in Australia. According to a recent analysis of their loan books, the big-four combined account for about 80% of the total mortgage market, and have almost $3.8 trillion in assets under management together. 
• Retail banks: retail banks are other for-profit banks outside of the big four, which operate to generate profits for shareholders and value for customers. Some of the biggest retail banks in Australia have billions and billions of loans under management, with some of the biggest being the likes of ING, Macquarie Bank, Bendigo and Adelaide Bank, HSBC, AMP and more. 
• Neobanks: There’s been a spate of new fintech ‘digital’ or ‘neo’ banks popping up lately, such as ubank or Judo bank.

When comparing home loans, take the time to sit down and compare loans from each of these different types of lenders, not just the one. You don't want to miss out on a great dal just because you didn't take a look at what each lender was offering. Broadening your search will help you find the right product for you. 

Who are Australia’s non-bank lenders? 

There are plenty of non-bank lenders in Australia now, with more popping up all the time. There are some smaller ones out there that claim to offer some competitive rates such as Reduce, Tiimely, VirginMoney, Well Home Loans, Freedom Lend and more, but these lenders are quite small and don’t have very large loan books. 

Some of Australia’s biggest non-bank lenders include the following: 

• Firstmac
• loans.com.au
• Resimac
• State Custodians
• Pepper Money
• Liberty

Firstmac & loans.com.au

Firstmac, with its retail brand loans.com.au, is one of the largest of Australia’s non-bank lenders. Having been in business for 40 years, Firstmac has provided more than 130,000 home loans and currently manages $16 billion in mortgages. Firstmac only accepts ‘prime’ borrowers with clean credit histories.

Resimac & homeloans.com.au

Resimac - with its wholly-owned subsidiaries homeloans.com.au and State Custodians - is another of Australia and New Zealand’s largest non-bank lenders, claiming to have a loan book in excess of $15 billion. Resimac has over 12,000 broking partners and offers loan solutions to a wide range of customers, like those with credit-impairments or the self-employed. 

Resimac is also listed on the ASX.

Pepper Money 

Established in 2000, Pepper Money has helped over 250,000 Australians with their home and car loans, many of whom are considered to be non-prime borrowers. 

Pepper could be a good option for those struggling to put together a deposit or have some patches in their credit history. It also has offices in Spain, South Korea, Ireland, and the UK.

Liberty 

Liberty is another of Australia’s major non-bank lenders, and is funded by some of the world’s largest institutions such as Deutsche Bank and Credit Suisse, as well as NAB. Liberty has been operational since 1997, and has helped over 600,000 Australians by advancing over $40 billion in funds.

What home loans do non-bank lenders offer? 

With non-bank lenders growing their market share in recent years, they’re offering some pretty competitive interest rates on their loans. Non-banks offer home loans for all sorts of different circumstances: 

1. Owner-occupier home loans
2. Refinance home loans
3. Guarantor home loans
4. Investment home loans 
5. Low-doc home loans
6. Construction loans
7. Bridging loans
8. Line of credit home loans

Can non-bank lenders go bust?

Like any bank or likewise, any business, there’s always a possibility, albeit a very slim one, that non-banks can go bust. This was evident during the height of the Global Financial Crisis (GFC), when households and institutions were generally reluctant to invest money. This saw some non-bank lenders struggle for funding, most-notably RAMS, which was forced to sell off its distribution business to big four bank Westpac.

But in October 2008 the Australian Government introduced its $20 billion mortgage-backed bond purchase programme (via the Australian Office of Financial Management – AOFM), effectively becoming a major investor in bonds issued by non-banks, thereby helping to keep the sector afloat. These bonds turned out to be profitable for the AOFM, generating over $2 billion in gross interest between 2008 and 2013. 

The government took this action because it recognised the importance of non-bank lenders as a genuine alternative in the market. This endorsement still rings true today, with Treasurer Josh Frydenberg giving non-bank lender Athena a shout-out for passing on the recent RBA cash rate cuts in full in 2019.

“They have gradually rebuilt and re-energised and, of course, they (borrowers) should borrow from them,” Former ACCC chair Graeme Samuels told ABC's 7.30.

“If you can get a lower rate from borrowing from a non-bank financial institution, why wouldn’t you do it? Their money is as good as any of the big four banks.”

Who do non-banks lend to? 

Some people might think non-bank lenders target ‘non-prime’ customers – aka those with bad credit histories, but this isn’t always true. While there are some non-banks who specialise in this consumer market segment - LaTrobe, for example, says 75% of its loans are dealt to these types of customers – others, such as Athena and Firstmac, specifically target ‘prime’ customers with clean credit histories and strong finances.

Some of these lenders have strict requirements that borrowers must meet, such as having at least a 20% deposit on the property they’re buying. It all depends on which one you go with. 

See the list of Australia’s most prominent non-bank lenders below. 

Non-bank home loans – pros and cons 

No lender is perfect – there are advantages and disadvantages of banking with a non-bank lender. Here’s a summary of these pros and cons below. 

Pros

• They can have competitive rates and fees 
• They are widely considered to be safe and genuine competitors to banks 
• Online non-banks can offer more personalised services 
• Faster application processing time

Cons

• Some non-bank lenders can be limited in the features they can offer with their home loans. For example, since they do not hold an ADI licence, they can’t offer offset accounts in the traditional sense, although some offer products that may operate similarly to offset accounts, like loans.com.au’s ‘redraw offset facility’. 
• They may not have as many products available as larger lenders – non-banks can’t offer deposits, for example, and may not have as many home loans to choose from 
• Many have a lack of physical branches if you prefer that type of banking 

Savings.com.au’s two cents 

Don’t immediately jump to the big banks to get a home loan. While they can have some viable products, other lenders do as well, and non-banks are no exception.

Non-banks are becoming more and more popular with each passing year as customers begin to take their home loans more seriously, so why not consider them next time you do some mortgage shopping? Consult a mortgage broker too if you need help.