Prospective homebuyers in search of home loans that are of reasonable value have the option to go to a non-bank lender. The Big Four banks of Australia may be prominent and offer a vast array of options. However, non-bank loan firms also offer consumers products precisely suitable for their needs. The Commonwealth Bank of Australia, National Australia Bank, Australia and New Zealand Banking Group, and Westpac Banking Corporation undoubtedly take up a massive component of the country’s financial ecosystem.
Also, this fact is actual for home loan products. The latest details from each of the Big Four banks’ end-of-financial-year reports indicated that their combined market share amounts to 81.2 per cent of Australia’s $1.8-trillion mortgage market. However, there is a downward swing away from the four largest financial service providers.
Their 2019 profits nosedived by almost eight per cent. Plus, from 2018, the 81.2-per cent market share is down nearly 100 basis points, or an entire percentage point. In 2019, residential mortgage lending surged by 3.3 per cent. Nevertheless, the Big Four banks merely increased their loan books by less than two per cent.
One explanation for this trend is that plenty of home loan consumers are searching for alternative loan providers. The non-bank lenders are one such choice for them. Based on the April 2019 report released by the Reserve Bank of Australia, in the past three years, there has been a change in lending for property towards lenders that are a non-authorised deposit-taking institution or ADI. Over this time, non-bank lending expansion is roughly 15 per cent. Now, that growth makes up approximately five to six per cent of housing credit overall.
Short Profile of Australia’s Non-Bank Loan Providers
As of June 2020, there are numerous non-bank lenders in Australia. Consumers should take into account that these lending companies do not function as a banking establishment. In Australia, a firm can become a bank if it is in the Australian Prudential Regulation Authority’s registry as an authorised deposit-taking institution or ADI. The ADI licence mainly permits financial establishments to accept consumer deposits, such as savings accounts or term deposits.
Non-bank lenders cannot accept these kinds of consumer deposits. Furthermore, they are dissimilar to banks since they cannot utilise the funds of their customers to offer home loans. Non-bank loan providers instead typically self-raise the funding needed to provide their clients with these kinds of loan offerings. They perform this measure through the issuance of bonds to investors and institutions.
Non-bank loan providers may not possess an ADI licence. However, they are trustworthy and secure because it is a requirement for them to maintain an Australian Credit Licence. Besides, these types of lenders must adhere to plenty of the same sector and legal codes as banking institutions. These regulations consist of Privacy Law, the National Consumer Credit Protection Laws, rules of the Australian Securities and Investments Commission, and the Australian Consumer Law.
The following are some of the largest non-bank loan providers in Australia:
(1) Pepper Money
Pepper Money’s goal is to assist its consumers in being successful in life. This non-bank lender claims to be the number-one alternative loan provider of Australia. Also, since 2001, Pepper Money affirmed that they had written home and car loans to more than 200,000 Australian customers. Plenty of these clients are non-prime. Consumers who have some patches in their credit history or are grappling with putting together a deposit could find Pepper Money as a sound choice. Plus, consumers based in other countries like the United Kingdom, Spain, Ireland, and South Korea can avail this company’s services.
(2) Resimac Group
This financial service company is one of the largest non-bank loan providers of New Zealand and Australia. Resimac Group is on the Australian Securities Exchange’s list. In 2019, it boasted a 19-per cent increment in its mortgage portfolio. Moreover, Resimac Group’s administrators affirmed that they possess a loan book north of $13 billion. This non-bank loan provider has more than 12,000 broking collaborators as well. Resimac Group provides loan services to a wide range of clients, including those who are self-employed or possess credit impairments.
As one of the largest non-bank lenders of Australia, Firstmac is also among the established ones. It has been in the business for four decades as of June 2020. It merely accepts ‘prime’ borrowers that possess upstanding credit histories. In its 2019 loan portfolio, Firstmac recorded a 14-per cent expansion. Plus, it has provided over 100,000 home loans worth north of $12 billion.
(4) State Custodians
This Resimac Group-owned company is another digital lender that has been in operation for over three decades as of June 2020. State Custodians has written over $1-billion worth of home loans. Also, for five consecutive years, Money Magazine has recognised this financial service provider as Non-Bank Lender of the Year.
As one of the leading non-bank loan providers of Australia, the world’s major financial institutions sponsor Liberty financially. Among these companies are the National Australia Bank, Credit Suisse, and Deutsche Bank. Moreover, since 1997, Liberty has been in service to its clients which total to almost 150,000 as of June 2020. The financial company has assets worth $12 billion. Liberty recorded a 24-per cent surge in its assets in June 2019 as well.
Loans.com.au is a component of the Firstmac Group. Since 2011, it has been in service to its clients, providing them with home and auto loans. This Brisbane-based financial service provider is a significant financial technology and digital-only company. Also, Loans.com.au’s lower overhead outlays compared to bricks and mortar companies have made it possible for this firm to offer competitive rates and fees to its clients.
Aside from these six non-bank lenders, there are new establishments opening. Some smaller non-bank loan providers remark that they provide clients with some competitive rates. These companies include Well Home Loans, Reduce, Freedom Lend, VirginMoney, Tic: Toc, and plenty of others. Nonetheless, these loan providers are quite small in dimension. Furthermore, they do not possess substantial loan books as of June 2020.
Customer Base and Services of Non-Bank Loan Providers
Customers who are unfamiliar with non-bank lenders might believe that these firms target non-prime consumers or delinquent clients with terrible credit histories. However, this belief is not always true. There are, indeed, some non-bank loan providers that specialise in this customer market segment. For instance, La Trobe Financial Services pointed out that 75 per cent of its loans get offered to clients with poor credit histories.
On the other hand, Firstmac and Athena are some examples of non-bank loan providers that mainly target ‘prime’ clients with healthy finances and good credit histories. Furthermore, some of these non-bank lenders impose stringent requirements that customers must fulfil. It all depends on which company a consumer selects. Examples are that borrowers should have at least a 20-per cent deposit on the residential property they are purchasing.
As for the home loans that non-bank loan providers offer, they provide their clients with some competitive rates on their products, with some of them expanding their market share in recent years. Non-bank lenders offer home loans to consumers with varied situations. They consist of:
1. Low-documentation home loans
2. Owner-occupier home loans
3. Line of credit home loans
4. Refinance home loans
5. Bridging loans
6. Investment home loans
7. Guarantor home loans
8. Construction loans
Australia’s non-bank lenders certainly have plenty of choices for their consumers. However, not all of their offerings may be favourable for every kind of home loan client. Availing these companies’ services has both perks and downsides. Learning about these aspects will allow clients to understand if these service providers suit their requirements or that they may need to go to another loan provider.
Upsides and Drawbacks of Availing the Services of Non-Bank Loan Providers
Non-bank lenders feature advantages and disadvantages to their consumers. Understanding these facts may help a potential homeowner to comprehend if these companies can serve their needs or otherwise.
1. In the financial service industry, non-bank loan providers have a reputation of being secure and an authentic rival to mainstream banking institutions.
2. Digital non-bank lenders are capable of providing consumers with more personalised services.
3. These financial companies can have competitive rates and fees.
1. Non-bank loan providers may not have as plenty of offerings available as compared to the bigger financial establishments.
2. Customers who prefer transacting in bricks and mortar banking facilities may feel disadvantaged by plenty of non-bank loan providers because the latter lack physical branches.
3. With their home loan products, some non-bank loan providers can get restricted in the features that they can offer their clients.
For instance, since non-bank lenders do not possess an ADI licence, in the traditional sense, they cannot provide their customers with offset accounts.
However, some non-bank loan providers offer products that may function in the same manner to offset accounts, such as the ‘redraw offset facility’ of Loans.com.au.
Today’s prospective homeowners do not have to make a decision quickly, opting for the visible home loan offers of prominent lenders. Large banking institutions certainly have some viable products. Nevertheless, non-bank loan providers do so as well.
As time passes, non-bank lenders are gaining in popularity as modern financial establishments because contemporary consumers take the switching and comparison of home loans more seriously than those from the past. Upon consulting with a mortgage broker for assistance, potential homeowners should consider these non-bank lenders when they conduct mortgage-shopping.