Just because it looks like a bank and acts like a bank, doesn’t mean it is a bank. And that can be wonderful news for borrowers. The mortgage market has become increasingly competitive in recent years, and everyday Australians now have more options than ever when it comes to choosing a home loan. One type of lender changing the face of the home loan industry is non-bank lenders.
Banks vs non-bank lenders: What’s the difference?
There are two different types of mortgage lender in Australia: authorised deposit-taking institutions (ADIs) and non-authorised deposit-taking institutions, also known as non-bank lenders.
ADIs are institutions that make loans and collect deposits via transaction accounts, savings accounts, term deposits and other types of deposit accounts. This includes mainstream banks and mutual banks.
Non-bank lenders, on the other hand, only make loans. Because they don’t collect deposits from customers, non-bank lenders source their own funding from other avenues and then lend out their funds to customers, making a profit on the difference.
Choosing a non-bank lender could equal big savings and more choice
In today’s hypercompetitive market, non-bank lenders are giving banks a run for their money, with products and features that are often superior to those being offered by banks.
In fact, non-bank lenders are a serious force in the Australian mortgage market – they issued $917.8 million worth of home loans in December, according to the most recent ABS data.
Many savvy borrowers are recognising the appeal of non-bank lenders as a competitive alternative to banks. For a start, non-bank lenders can often provide lower interest rates and lower fees than banks, because they don’t have to pay overheads like the cost of maintaining expensive branch networks.
Likewise, non-bank lenders often have more flexible lending criteria than banks thanks to being regulated by a different, less prescriptive regulator – the Australian Securities & Investments Commission (ASIC) rather than the Australian Prudential Regulation Authority (APRA).
As a result, non-bank lenders can often provide different options to borrowers when choosing a home loan. And because they tend to be smaller than banks, non-bank lenders can also often provide more personalised service, even to borrowers who require a specialised home loan to suit unique circumstances.
In some cases, non-bank lenders can also provide borrowers access to home loans that could have been declined by the major banks.
It pays to explore your options
With the rising cost of living and property prices in Australia, it’s no surprise borrowers are seeking alternative lenders that can provide greater flexibility and help reduce their mortgage bill each month. Many non-bank lenders are stepping in to replace traditional banks by offering a superior home loan experience.
For those planning to take out a home loan or refinance, opting to go with a non-bank lender that can offer the right home loan with competitive rates and features could mean more choice and more money in your pocket.
Non-bank lenders aren’t the best option for all borrowers. But you should at least consider using a non-bank when researching your next mortgage.