Home loans from non-bank lenders

author-avatar By on December 04,2019
Home loans from non-bank lenders

Photo by Juliane Liebermann on Unsplash

If you’re looking for a good value home loan, you actually don’t have to go to a bank. A non-bank lender could have just what you’re after.

There’s no doubt that the big four banks take up a gigantic part of Australia’s financial ecosystem, and this is definitely true for home loans. According to the latest data from each of the banks’ end of financial year reports, their combined market share is 81.2% of Australia’s $1.8 trillion mortgage market.

But there’s a downward trend away from the big four. Their 2019 profits fell by nearly 8%, and that 81.2% market share is actually down nearly 100 basis points (or one whole percentage point) from 2018. Residential mortgage lending grew by 3.3% in 2019, but the big four only grew their loan books by less than 2%. So what’s going on? 

Well, lots of home loan customers are looking to alternative lenders, and non-bank lenders are one such alternative. According to a Reserve Bank report from April 2019, there has been a shift in lending for property towards non-ADI lenders in the past three years. Over this period, non-bank lending growth is about 15%, and now makes up about 5-6% of housing credit in total. 

nonbank housing credit

Source: APRA, RBA

What’s on this page:

With non-banks becoming more popular in the mortgage market, we answer:

What is a non-bank lender

A non-bank lender is simply a lender that isn’t a bank. To be a bank, a lender must be registered as an ADI (authorised deposit-taking institution) with APRA (The Australian Prudential Regulation Authority), which essentially allows institutions to accept customer deposits (term deposits and savings accounts). Non-bank lenders cannot accept customer deposits, which means they cannot accept consumer deposits  (e.g. by offering savings accounts or term deposits) and use the funds to provide home loans, which is generally what banks do. Instead, non-banks typically self-raise the funds required to provide home loans by issuing bonds to institutions and investors.   

Just because non-bank lenders do not have an ADI licence doesn’t mean they aren’t safe or trustworthy. Non-banks still must have an Australian Credit Licence (ACL) and have to comply with many of the same industry and legal codes as the banks, such as: 

  • ASIC laws
  • The National Consumer Credit Protection Laws
  • Australian Consumer Law 
  • Privacy Law etc. 

Can non-bank lenders go bust?

Like any bank or likewise, any business, there’s always a possibility, albeit a very slim one, that non-banks can go bust. This was evident during the height of the Global Financial Crisis (GFC), when households and institutions were generally reluctant to invest money. This saw some non-bank lenders struggle for funding, most-notably RAMS, which was forced to sell off its distribution business to big four bank Westpac. But in October 2008 the Australian Government introduced its $20 billion mortgage-backed bond purchase programme (via the Australian Office of Financial Management – AOFM), effectively becoming a major investor in bonds issued by non-banks, thereby helping to keep the sector afloat. These bonds turned out to be profitable for the AOFM, generating over $2 billion in gross interest between 2008 and 2013. 

The government took this action because it recognised the importance of non-bank lenders as a genuine alternative in the market. This endorsement still rings true today, with Treasurer Josh Frydenberg recently giving non-bank lender Athena a shout-out for passing on the recent RBA cash rate cuts in full

While Australia’s non-bank lending sector is not as big as it was before the GFC (when it comprised around 25% of the nation’s home loans), it has made a comeback in recent years as more Australians switch to the lower-rate home loans offered by a number of non-banks. Former ACCC chair Graeme Samuels acknowledged this in a recent interview with ABC’s 7:30 programme.     

“They have gradually rebuilt and re-energised and, of course, they (borrowers) should borrow from them,” Mr Samuels said.

“If you can get a lower rate from borrowing from a non-bank financial institution, why wouldn’t you do it? Their money is as good as any of the big four banks.”

Who do non-banks lend to? 

Some people might think non-bank lenders target ‘non-prime’ customers – aka those with bad credit histories, but this isn’t always true. While there are some non-banks who specialise in this consumer market segment- LaTrobe, for example, says 75% of its loans are dealt to these types of customers – others, such as Athena and Firstmac, specifically target ‘prime’ customers with clean credit histories and strong finances. Some of these lenders have strict requirements that borrowers must meet, such as having at least a 20% deposit on the property they’re buying. It all depends on which one you go with. 

See the list of Australia’s most prominent non-bank lenders below. 

Who are Australia’s non-bank lenders? 

There are plenty of non-bank lenders in Australia now, with more popping up all the time. There are some smaller ones out there that claim to offer some competitive rates such as Reduce, Tic:Toc, VirginMoney, Well Home Loans, Freedom Lend and more, but these lenders are quite small and don’t have very large loan books. 

Some of Australia’s biggest non-bank lenders include the following: 

Firstmac 

Firstmac is one of the largest of Australia’s non-bank lenders. Having been in business for 40 years, Firstmac has provided more than 100,000 home loans worth upwards of $12 billion. Firstmac only accepts ‘prime’ borrowers with clean credit histories, and in 2019 Firstmac posted a 14% growth in its loan portfolio. 

loans.com.au

loans.com.au, a leading fintech and online-only lender based in Brisbane operating since 2011, is a part of the Firstmac Group. As an online-only lender, loans.com.au says it’s able to offer competitive rates and fees to customers thanks to lower overhead costs than traditional bricks and mortar financial institutions. It offers home loans and car loans.

Resimac 

Resimac is another of Australia and New Zealand’s largest non-bank lenders, claiming to have a loan book in excess of $13 billion. Resimac has over 12,000 broking partners and offers loan solutions to a wide range of customers, like those with credit-impairments or the self-employed. 

Resimac is also listed on the ASX, and boasted a 19% growth in its mortgage portfolio in 2019. 

State Custodians 

Resimac also owns State Custodians, another online lender that’s been active for more than 30 years and has written more than $1 billion worth of home loans. State Custodians has been recognised as Non-Bank Lender of the Year by Money Magazine for five years in a row.

Pepper Money 

Pepper Money claims to be Australia’s number one alternative lender, with a mission to help people succeed. Since 2001, Pepper claims to have written loans to (home and car) over 200,000 Australians, many of whom are considered to be non-prime. 

Pepper could be a good option for those struggling to put together a deposit or have some patches in their credit history. It also has offices in Spain, South Korea, Ireland and the UK.

Liberty 

Liberty is another of Australia’s major non-bank lenders, and is funded by some of the world’s largest institutions such as Deutsche Bank and Credit Suisse, as well as NAB. Liberty has been operational since 1997, and has assets worth $12 billion from nearly 150,000 customers. 

Liberty posted a 24% growth in assets in the year to June 2019. 

What home loans do non-bank lenders offer? 

With non-bank lenders growing their market share in recent years, they’re offering some pretty competitive interest rates on their loans. Non-banks offer home loans for all sorts of different circumstances: 

  1. Owner-occupier home loans
  2. Refinance home loans
  3. Guarantor home loans
  4. Investment home loans 
  5. Low-doc home loans
  6. Construction loans
  7. Bridging loans
  8. Line of credit home loans

See our article on each of the different types of home loans here for more information on these, and have a look at the tables below to see some of the lowest-rated home loans from non-bank lenders for:

Non-bank variable home loans

The tables below display a snapshot of some of the lowest-rate variable home loans available from non-bank lenders. These tables are for owner-occupiers only – see our comparison table on investment home loans to see what investment rates the larger non-banks offer. 

Principal and interest

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Purchase or Refi, 80% Smart Home Loan 2.88% 2.90% $1,661 More details
Low Rate Home Loan w/Offset 2.90% 2.91% $1,665 More details
Essentials Variable P&I 3.04% 3.07% $1,695 More details
Liberty Sharp 75-80% Variable 3.84% 3.91% $1,873 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Purchase or Refi, 80% Smart Home Loan
3.07% 2.90% $1,661
More details
Low Rate Home Loan w/Offset
2.90% 2.91% $1,665
More details
Essentials Variable P&I
3.04% 3.07% $1,695
More details
Liberty Sharp 75-80% Variable
3.84% 3.91% $1,873
More details

Base criteria of: a $400,000 loan amount, fixed, interest-only (IO) home loans with an LVR (loan-to-value) ratio of 80% or less. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 2 December 2019. View disclaimer.

Interest-only

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Low Rate Home Loan w/Offset IO 3.15% 3.16% $1,050 More details
Essentials Variable IO 3.39% 3.42% $1,130 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Low Rate Home Loan w/Offset IO
3.15% 3.16% $1,050
More details
Essentials Variable IO
3.39% 3.42% $1,130
More details

Base criteria of: a $400,000 loan amount, fixed, interest-only (IO) home loans with an LVR (loan-to-value) ratio of 80% or less. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 2 December 2019. View disclaimer.

Non-bank fixed home loans

The tables below display a snapshot of some of the lowest-rate fixed-interest home loans available from non-bank lenders. These fixed rates have been narrowed down to three-year terms for consistency. See our comparison table on investment home loans to see what fixed investment rates the larger non-banks offer. 

Principal and interest

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Fixed 3yrs Special Offer 2.99% 3.12% $1,684 More details
Liberty Fixed 3yrs 4.29% 4.58% $1,977 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Essentials Variable IO
2.99% 3.12% $1,684
More details
Liberty Fixed 3yrs
4.29% 4.58% $1,977
More details

Base criteria of: a $400,000 loan amount, fixed, interest-only (IO) home loans with an LVR (loan-to-value) ratio of 80% or less. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 2 December 2019. View disclaimer.

Interest-only

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Fixed OO 3yrs 3.34% 3.47% $1,113 More details
Liberty Fixed 3yrs 4.29% 4.58% $1,430 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Essentials Variable IO
3.34% 3.47% $1,113
More details
Liberty Fixed 3yrs
4.29% 4.58% $1,430
More details

Base criteria of: a $400,000 loan amount, fixed, interest-only (IO) home loans with an LVR (loan-to-value) ratio of 80% or less. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 2 December 2019. View disclaimer.

How do non-bank lenders rates and fees compare to other lenders? 

Non-bank lenders offer some good interest rates and low fees on certain products, but this isn’t always the case. There are thousands of home loan products on the market, which means they can also have products with rates and fees on the lower end of the scale. 

There’s no definitive answer as to whether non-banks have better or worse products than other types of lenders – this will depend on the product itself and who’s interested in it. Other types of lenders you’ll see home loans from include: 

  • Customer-owned banks: also known as mutual banks, customer-owned banks are owned and operated with the sole purpose of providing banking services to customers rather than generating a profit. They argue this lets them offer better rates and fees to their customers, which is sometimes but not always true. 
  • The big four banks: the big four banks  ANZ, Commonwealth Bank, NAB and Westpac – are so-called because they take up much of the home loan market in Australia. According to a recent analysis of their loan books, the big four combined account for about 81% of the total mortgage market, and have more than $1 trillion in assets under management together. 
  • Retail banks: retail banks are other for-profit banks outside of the big four, which operate to generate profits for shareholders and value for customers. Some of the biggest retail banks in Australia have billions and billions of loans under management, with some of the biggest being the likes of ING, Macquarie Bank, Bendigo and Adelaide Bank, HSBC, AMP and more. 
  • Neobanks: there’s been a spate of new fintech ‘digital’ or ‘neo’ banks popping up lately such as Up, 86 400 and Judo Bank, which claim to be fast and cheap online alternatives to banking. So far these new arrivals are offering some highly competitive rates on savings accounts, and although few offer home loans at the moment, they have stated they plan to do so in the near future. 86 400 for example recently announced the release of its broker-based home loan products. 

When comparing home loans, make sure you do between loans from each of these different types of lenders, not just the one. Each of them offers some of the best and worst rates on the market between them so don’t go making any assumptions – broadening your search will help you find the right product for you. 

The table below displays a selection of variable-rate home loans on offer, featuring a low-rate pick from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks.

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Purchase or Refi, P&I 80% Smart Home Loan 2.88% 2.90% $1,660 More details
Discount Variable 80% 3.07% 3.09% $1,702 More details
Base Variable Rate Special P&I 3.20% 3.20% $1,730 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Purchase or Refi, P&I 80% Smart Home Loan
2.88% 2.90% $1,660
More details
Discount Variable 80%
3.07% 3.09% $1,702
More details
Base Variable Rate Special P&I
3.20% 3.20% $1,730
More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 1 November 2019. View disclaimer.

Non-bank home loans – pros and cons 

No lender is perfect – there are advantages and disadvantages of banking with a non-bank lender. Here’s a summary of these pros and cons below. 

Pros

  • They can have competitive rates and fees 
  • They are widely considered to be safe and genuine competitors to banks 
  • Online non-banks can offer more personalised services 

Cons

  • Some non-bank lenders can be limited in the features they can offer with their home loans. For example, since they do not hold an ADI licence, they can’t offer offset accounts in the traditional sense, although some offer products that may operate similarly to offset accounts, like loans.com.au’s ‘redraw offset facility’. 
  • They may not have as many products available as larger lenders – non-banks can’t offer deposits, for example, and may not have as many home loans to choose from 
  • Many have a lack of physical branches if you prefer that type of banking 

Savings.com.au’s two cents 

Don’t immediately jump to the big banks to get a home loan. While they can have some viable products, other lenders do as well, and non-banks are no exception. Non-banks are becoming more and more popular with each passing year as customers taking comparing and switching home loans more seriously, so why not consider them next time you do some mortgage shopping? Consult a mortgage broker too if you need help.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

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author-avatar
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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