They offer you home loans just like a bank and yet they are not a bank. Well, exactly what are they?
Let’s start at the beginning. Non-bank lenders first appeared on the home loan scene in the early 1990s with pioneers such as Wizard Home Loans, Aussie Home Loans and RAMS Home Loans.
Their chief point of difference to banks is quite simple; they are not authorised deposit taking institutions (ADIs). In other words, they can more than happily lend you money, but you cannot deposit your money with them.
Non-banks source their home loan funding from wholesale banks and capital markets – which big banks also use as part of their funding mix, alongside customer deposits.
Initially, non-bank lenders looked predominantly to beat the big banks on price, successfully undercutting the banks’ interest rates by two per cent or more.
During the depths of the Global Financial Crisis (GFC) however, non-bank lenders fell out of favour with borrowers as the global shortage of funds squeezed the sector’s customer proposition within an inch of its life. Wholesale funding costs soared, making it virtually impossible for them to sustain their price advantage.
But today it is a different story. Non-bank lenders have since reinvented themselves and are again on the front foot. While capital market conditions are still challenging, they are improving. Moreover, many non-banks now source their wholesale funds from banks themselves.
For anybody thinking about making a property purchase, non-bank lenders are certainly worth consideration. While they may no longer have their sharp price advantage, they still offer competitive pricing as well as an attractive customer proposition.
Many non-bank lenders look to deliver where many bigger banks traditionally fall short. From personalised customer service to fast approval times, non-banks are working hard to provide a real bank alternative.
In particular, many non-banks are more willing to lend to borrowers with more complex situations or blemished credit records, which makes them an appealing option for many. Their product ranges are also quite broad or more specialist than the major banks’.
As with any financial commitment, borrowers considering going with a non-bank lender should do the relevant due diligence to ensure they are happy with their decision and confident the lender and the relevant product will meet their individual needs.