Moving to Non Bank Lenders | CCG
What a difference a year or two makes; whilst non-bank lending has been around for a long time, it’s only hit the headlines in the last 12-18 months. This was to be expected, of course, giving the growing dissatisfaction with traditional lending institutions.
Banks were quite happy to sow seeds of doubt in the minds of customers as to the viability and trustworthiness of non-bank lenders; they wanted the business for themselves. But as banks continue to clamp down on lending – and the non-bank lenders prove their worth – mortgage growth in the non-bank sector is now overtaking the bigger financial players.
The turning point was July 2015, when the capital requirements for traditional banks rose significantly, and the Labor Party took a strong position on negative gearing. Lending by the Big 4 Banks fell almost immediately, with property developers being the hardest hit.
High-Return Investment Opportunities
This was the non-bank lending sector’s chance to step up and fill the void, and that they did with confidence and success. The appeal was two-fold; not only were they providing the funds property developers needed, they were also offering high-return investment opportunities for those despairing over the banks' low interest rate.
As the myths about non-bank lenders were well and truly busted, it wasn’t just property developers who recognised the benefits; suddenly this was also a great option for home loan seekers, with the major selling points being speed and flexibility.
One of the myths bandied around about non-bank loans is that they’re more expensive; the truth is, they can be offered at very competitive rates. Not having the huge corporate and branch structure of traditional banks, non-bank lenders are able to pass on those savings to the customer. There may also be lower set-up and ongoing fees.
This type of competition within the home loan sector was much needed; the major banks have enjoyed far too much autonomy for too long. What is clear today is that traditional financial institutions are lagging behind non-bank lenders in the mortgage market, particularly where owner-occupiers are concerned.
Non-bank lenders are giving customers more choice and therefore more chance of getting into their own home.
Another busted myth is that non-bank lenders only give loans to those with a bad credit history. We’re talking about reputable financial companies here, who would certainly not risk their reputation and future. Just because it’s easier to get a home loan through a non-bank lender doesn’t mean anyone can get one.
Besides, just because an individual has been turned down by one of the big banks, it doesn’t mean they’re a credit risk; it could just be that they’re self-employed or a first home buyer or just don’t tick the right boxes. Non-bank lenders tend to assess every application on its own merit.
One of the biggest problems with the banks at the moment is that they are reluctant to fund interest-only and non-resident home loans. So long as the numbers add up, that’s not an issue for non-bank lenders like Credit Connect Group. They specialise in lending to self-employed, foreign residents, interest-only and other non-conforming borrowers.
Quick answers and prompt settlement means a lot less stress for those who have in the past faced long delays from the bank. And with home loans from $100,000 to $1 million, the options are certainly attractive.
Home Mortgage Market
The mortgage market has always been seen as a major driver for the big banks. However, their share of that market has been falling since 2014. As non-bank lenders continue to offer innovative options to a hungry market, that share will shrink even further. Even the Reserve Bank of Australia recognises this trend, saying that non-banks have been able to “take advantage of financial innovation and improvements in technology, which have led to significant reductions in the prices of a range of financial services”.
This has forced the major banks to launch new technology and products to try and keep up which has, in turn, reduced their profit margins; not something the shareholders would approve of.
Watch This Space
Non-bank lenders are being described as the future of banking; they have the products, the flexibility and the funds that customers demand. Over time, these non-traditional financial institutions have evolved and grown, proving themselves to be a contender.
As far as both commercial and home loans go, it’s a matter of watch this space.
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This information is for general education purposes only and is not intended to constitute specialist or personal advice. It is not intended to be a complete statement of all information and has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should consider the appropriateness of the information to your own situation and needs before taking any action. It should not be relied upon for the purposes of entering into any legal or financial commitments.
Peter holds a Diploma of Financial Planning and is PS146 compliant. Credit Connect Finance Pty Ltd ACN 113 576 891 Australian Credit Licence 396190
Author Bio: Queensland-based business journalist Isobel Coleman considers the options for commercial property loans, commercial development loans, and loan for non-residents.