Just because a lender looks and acts like a bank doesn’t mean it is one. In Australia’s increasingly competitive mortgage market, non-bank lenders have become a serious alternative to the big four. Understanding how they differ could save you money on your next home loan.
What’s the difference between a bank and a non-bank lender?
Home loan lenders in Australia generally fall into one of two categories:
- Authorised deposit-taking institutions (ADIs). These are mainstream banks, the big four, and mutual banks such as credit unions and building societies. ADIs collect deposits through savings accounts and term deposits, and are regulated by both APRA (the Australian Prudential Regulation Authority) and ASIC (the Australian Securities and Investments Commission).
- Non-bank lenders, such as Well Money, only make loans; they don’t accept customer deposits, so they aren’t classified as ADIs and aren’t regulated by APRA. They source their own funding elsewhere and lend it out, and are instead regulated by ASIC under the National Consumer Credit Protection Act.
Why Australians are choosing non-bank lenders
Non-bank lenders have been steadily growing their share of the Australian lending market, and it’s not hard to see why:
- They may offer lower interest rates. Banks carry the cost of large branch networks, sizeable head-office teams and often complex legacy technology. Non-bank lenders tend to run leaner, and can pass those lower overheads on as more competitive rates.
- They may have more flexible lending policies. Banks often apply rigid, one-size-fits-all eligibility criteria. Non-bank lenders are typically more willing to look at your individual circumstances. This can matter if you don’t tick every standard box, including for borrowers with a less-than-perfect credit history.
- They may offer better, more personalised service. Being smaller generally means fewer handoffs, so you’re more likely to deal with one consultant throughout your application rather than being passed between departments.
- They may process applications faster. Fewer layers of management and internal approval can mean quicker turnaround times from application to decision.
- They may offer options for niche borrowers. If you don’t fit a bank’s standard mould, such as self-employed income, an unusual property type, or a specific financial situation, non-bank lenders often have more specialised products designed to help.
Is it safe to use a non-bank lender?
Because non-bank lenders don’t hold an ADI licence, it’s a fair question. The short answer is yes. Non-bank lenders are regulated by ASIC, the same financial services regulator that oversees banks’ lending conduct.
To operate, a non-bank lender must hold an Australian Credit Licence (ACL) and comply with the same core consumer protections banks do, including the National Consumer Credit Protection Act, the Australian Consumer Law and the Privacy Act. What they don’t do is accept deposits, so the deposit-guarantee protections that apply to bank savings accounts simply aren’t relevant to a home loan either way, since you’re borrowing from them, not depositing money with them.
Is a non-bank lender right for you?
Non-bank lenders aren’t automatically the best option for every borrower. In some situations, a mainstream bank may still suit you best. But given the potential for lower rates, more flexible assessment and a more personal experience, it’s worth including a non-bank lender in your research when you’re taking out a home loan or refinancing, rather than only looking at the big four.
We are mortgage brokers, and our panel includes non-bank lenders as well as banks, so we can tell you which ones suit your situation. Call us on 1300 899 724 or book a time to talk it through.