Prior to the 1980s, the Australian banking industry was, to a large extent, dominated by banks, credit unions, and building societies. However, after the banking industry was deregulated, non-bank lenders established themselves as an attractive alternative for Australian home buyers.
Non-bank issued home loans have helped to make the market more competitive, and this has given homebuyers more options when it comes to home loans, rates and features. While each kind of lender has its merits, we’ve laid out some key points you might need to consider when reviewing your home loan options.
What is a non-bank lender?
A non-bank lender is the name given to a financial institution that isn’t a bank, credit union or building society. Non-bank lenders include a variety of financial institutions that offer home loan products to Australians, such as investment banks, mortgage originators, insurance companies, and mortgage brokers, among others.
These alternative lenders are privately owned and not mutual companies, so, this does tend to impact the scope of their services when compared to an established bank. However, despite this, consumers are still able to find basic and superior non-bank home loans, line of credit loans, low doc loans, reverse mortgages and bad credit loans.
Lastly, it may be important to note that there are certain home loan features that you might not be able to find with a non-bank loan. This is due to services such as credit cards not being available with non-bank lenders.
Key considerations when selecting a non-bank lender
With non-bank loans, consumers may find more generous rates and fees when they explore the market. As non-bank lenders are privately owned, they have greater flexibility on how they can lower their rates to remain competitive with the large banks.
Less restrictive criteria
Unlike bank loans, non-bank home loans may have less restrictive financial criteria for applicants to pass. Therefore, non-bank loans could be right for you if you have only average credit and have not been able to gain approval for a home loan with a major lender.
With the average home loans in Australia in the region of $345,000 for first-time buyers and $406,000 for non-first time buyers, you might be worried about having to pay a 20% deposit1. Thankfully, the competition between banks and non-bank lenders has made the outlook for home-buyers very bright, with some requiring home loan deposits between 5% and 20%2.
Due to the strict credit history and earning requirements banks have in place for self-employed homebuyers, many consumers turn to non-bank lenders. Thankfully, non-bank lenders tend to offer home loans to self-employed Australians even if they might have been turned down by a traditional bank.
Taking out a home loan is a big step in one’s life and something that you should strongly consider protecting. At ALI, we offer mortgage protection insurance that could help keep you financially secure in the case an eligible serious life event that prevents you from making an income. To learn more, please talk to your local ALI-authorised mortgage broker today, or alternatively, request your mortgage protection quote here.
Loan Protection Plan is jointly issued by Hannover Life Re of Australasia Ltd ABN 37 062 395 484 (Death, Terminal Illness, Living and Accidental Injury Benefits) and QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545 (Involuntary Unemployment Benefit). It is distributed by Australian Life Insurance Distribution Pty Ltd ABN 31 103 157 811 AFSG 226403 (ALI). ALI receives commission for each policy sold. Any advice provided is of a general nature only and does not take into consideration your personal objectives, financial situation or needs. You should consider the Product Disclosure Statement when deciding if this product is appropriate for you.