Home loans from non-bank lenders
In the 1980s the banking sector in Australia was deregulated. Prior to this you could only get home loans from banks, building societies and credit unions. As a result it was difficult for Australians with a poor credit history and those on a low income to buy a home. After deregulation a number of non-bank lenders were able to start offering home loans at very competitive interest rates, often below those made available by the regular financial institutions. Homebuyers began to benefit from this competitive market as the banks were forced to lower their rates.
What are non-bank lenders?
Non-bank lenders include insurance companies, investment banks, mortgage brokers and mortgage originators among others. While they don’t hold a banking licence as such, nevertheless they are subject to the same banking regulations and laws as licensed financial institutions according to the Consumer Credit Code and the Australian Securities and Investments Commission (ASIC). ASIC requires all lenders to disclose all rates and fees pertaining to their products and to make this information easily available to consumers. The Australian Prudential Regulatory Authority (APRA) operates slightly differently in that it oversees banks for the sole purpose of ensuring that they keep to any financial promises they make.
How do non-bank lenders operate?
As privately owned non-mutual organisations, non-bank lenders usually rely on selling on their products in large quantities to be retailed by others. Compared to banks their services are restricted, however, they do include provision of bad credit loans, home loans, reverse mortgages, low doc loans and line of credit loans. Unlike regular banks, there are no additional features such as transaction accounts or credit cards.
Why opt for home loans from non-bank lenders?
Non-bank lenders provide some advantages if you are searching for a good deal as your provider can be more flexible in terms of the fees and the interest rates they charge. This results in banks lowering rates to remain competitive and you, the consumer, benefit by sourcing more affordable home loans from a variety of financial institutions.
When comparing home loans use the same criteria for non-bank lenders as for any other lender. Check your eligibility, the fees involved, the interest rates and whether the loan features are a good fit for your financial needs.
What are the rewards and risks?
Home loans from non-bankers provide a reward for customers in that they offer flexible interest rates and great levels of service. They have become enormously popular because of this, and also because some people are dissatisfied with their experiences of banks. Non-bank lenders are conscious of the fact that many dissatisfied consumers often turn to them for an improved customer service.
One thing to be aware of if you are considering home loans from non-bank lenders is that there may be inconsistencies when it comes to passing on interest rate changes. As they have a mix of private funding and funding via banks, for example if they are managing mortgages, the rate changes could vary considerably.