The mortgage lending sector in Australia is very competitive, so you have a lot of options when it comes to choosing a home loan provider.
But whichever lender you end up going with, they’ll usually fall into one of three categories:
- Mainstream banks, including the big four and second-tier institutions
- Mutual banks, including credit unions and building societies
- Non-bank lenders such as Well Home Loans
What’s the difference between them?
Both mainstream and mutual banks offer deposit products such as savings accounts and term deposits. This means they’re classified as ‘authorised deposit-taking institutions’ (ADIs) and are regulated by both the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).
Non-bank lenders don’t offer deposit accounts so aren’t classified as ADIs. However, they are still governed by the National Consumer Credit Protection Act and regulated by ASIC.
Why Australians choose non-bank lenders for their home loans
While some borrowers will always choose a big four bank come hell or high water, many people recognise that using a non-bank lender can sometimes be the smarter option. Here are the reasons why:
1. They may have lower interest rates.
Many banks have a large corporate structure and branch network which can be expensive to run. In contrast, non-bank lenders often have lower overheads as they are smaller and based online. They can then pass on these savings to their borrowers in the form of low rates.
2. They may have more flexible lending policies
Banks often have rigid eligibility criteria, so you may get rejected if you don’t tick all the right boxes. On the other hand, non-bank lenders tend to be more flexible with their lending policies. That means they may approve mortgage applications that banks may reject.
3. They may have better customer service
Due to their smaller size, non-bank lenders are often able to offer a more personalised service than banks. For example, if you apply for a Well Home Loan you’ll deal with one consultant throughout the process rather than the multiple people you might get with a bank.
4. They may process applications more quickly
Another advantage of being small is that non-bank lenders may have quicker turnaround times on your application. That’s because they often don’t have as many layers of management that the big banks typically do.
5. They may offer loan options for niche borrowers
Banks tend to have a ‘one-size-fits-all’ approach to their home loans. But if you don’t fit the mold, you’ll often struggle to get approved. Non-bank lenders can help these borrowers get finance as they often have specialised products that might fit the bill.
Find the right lender for you
If you’re looking for a home loan, do your research and keep an open mind.
In some situations, your best option may be to borrow through a big four bank; in others, your best option may be to go with a non-bank lender. The important thing is to base your decision on facts, not preconceptions.