While we usually think of the big four banks when it comes to home loans, many mortgages are written by non-bank and boutique lenders like credit unions, building societies and other mortgage lenders that aren’t associated with banks.
There are a lot of myths regarding non-bank lenders; but these alternative finance options are important in keeping Australia’s home loan and finance market competitive.
Australia’s finance sector is tightly regulated, and this article looks deeper into the difference between bank and non-bank lenders.
Non-bank lending explained
Simply put, a non-bank lender is a finance lender who is not a bank. When it comes to your mortgage, traditional banks and non-bank lenders differ in the source of their funds and who regulates them.
Banks, building societies and credit unions are ‘Authorised Deposit-taking Institutions’ (ADIs), meaning they can offer deposit products like saving accounts and term deposits. A portion of funding used in the lending of traditional banks comes from the deposits they hold for their customers. In contrast, the financing for non-banks comes from private investors or large organisations.
Non-bank lenders are not ADIs and cannot offer deposit products like saving accounts and term deposits.
This is important as it affects the products they can offer and who regulates them. Since non-banks are not ADIs, they do not hold a banking licence, which means that, unlike your bank, they are not regulated by the Australian Prudential Regulatory Agency (APRA).
Non-banks hold a credit licence and are regulated by the Australian Securities and Investments Commission (ASIC). Non-banks follow the Consumer Credit Code, which governs all Australian credit transactions, and the Australian Prudential Regulatory Authority takes on an advisory role for non-bank lenders.
Are non-bank lenders safe?
Banks are often perceived as safer because of the high amount of government scrutiny and regulation they are subjected to. Non-bank lenders must also comply with legal and industry codes. These include ASIC laws and the National Consumer Credit Protection laws.
When finding a suitable loan option, whether looking at a bank or non-bank option is best to consider the products that suit your circumstances.
Who has higher fees?
Non-bank lenders help drive competition in Australia’s mortgage market by offering borrowers an alternative to getting a loan from a bank.
No matter the lender, each loan product will have different rates and fees. To understand the total cost of your loan, you should compare the individual loan products.
Who has lower interest rates?
Again, this depends on the individual loan products available at the time. Both banks and non-banks will have a range of products with higher and lower interest rates.
Am I more likely to be approved by a non-bank lender?
Generally, those with good financials are better positioned to access competitive rates no matter the lender; non-bank lenders often specialise in providing loans for ‘non-conforming’ borrowers.
Non-conforming borrowers don’t fit the banks’ usual boxes, like having a credit history or meeting Lenders Mortgage Insurance (LMI) providers’ criteria. Banks generally have a very strict set of criteria for applicants, and if you don’t tick their boxes, it can be harder to secure a loan.
For example, if you are self-employed, you might not have evidence of cash flow or PAYG statements which can mean it is harder for you to secure a loan from traditional bank lenders.
Do non-bank lenders have fewer options?
Non-bank lenders offer a serious alternative to traditional banks. A wide range of lenders improves competitiveness and ultimately is advantageous to borrowers who can shop around for home loan options.
As your Mortgage Broker, our job is to understand your goals, review your situation and go to the market to find solutions that suit you. Our extensive panel includes products from bank and non-bank lenders, and we will find the most competitive loan to suit your needs.
Whether investing, purchasing your first home or looking to refinance, our team can tailor competitive loan solutions for you. Book your complimentary Home Loan Assessment with our team today!
Disclaimer:
Terms are subject to approved persons only. This information is true and correct as of 20/07/2022. All of the content above is general in nature and may not suit your personal needs, situation objective & goals.
