The Best Non-Bank Mortgage Lenders in Australia |
Brokers on Non-Banks 

 

This year’s data indicates that the best non-bank lenders have strengthened their ties with brokers by adapting their strategies in response to shifting third party channel and customer needs. 

 

One broker highlighted a non-bank lender’s exceptional performance on an unconventional refinancing assessment: “Their flexibility in accepting the client’s situation and recognising that the refinance would greatly improve their financial situation was remarkable.”

 

Non-banks’ expanding lending prowess – rising to 16% of Australian commercial real estate debt (ACRED) from 10.4% in 2020 – is no small feat. They have capitalised on opportunities the big four may have missed and were quick to cater for underserved consumers.

 

“The banks have contracted their appetite for anything that doesn’t fit neatly inside a box,” says National Mortgage Brokers (nMB) managing director Gerald Foley. 

 

“Non-banks see less volume and try to understand individual borrower needs and price risk accordingly. We’re seeing more complicated cases, especially with self-employed borrowers, that banks struggle to accommodate.”

 

As in years past, brokers ranked turnaround times among their top priorities, suggesting speed remains critical. There’s general satisfaction, as over half of brokers believe non-banks have improved, and a significant portion noted no change:

• “Most non-banks pick up the deals in less than 48 hours”
• “They seem to be working faster to obtain approvals for us”

There was a striking shift in brokers’ expectations of non-bank lenders as BDM support and credit policy shot to the top of their priority list at first and second place, respectively, from seventh and last place in 2023. 

 

This revelation highlights a need for proactive communication and guidance from brokers’ non-bank partners, as well as lending policies that are in tune with evolving consumer needs and market conditions.

 

David McQueen, Loan Market’s CEO, points out that non-banks are keenly aware of broker needs, and some of the country’s best BDMs and credit assessors work for them. Delivering on these aspects is essential to giving brokers confidence in their proposition.

 

“As funding has become more expensive and challenging, non-banks have tilted away from competing against the majors to increase their focus on policy and servicing niches,” McQueen says. 

 

“Competitive pricing is important, but certainty is even more so. For example, can a lender make this loan work, and how quickly? The best non-banks can make it clear if they can do the loan and how quickly. Consistency is key, and this has never really changed.”

 

Brokers’ continued emphasis on interest rates, which rose in priority to fourth place from eighth last year, underscores their sensitivity to the impact of competitive pricing on their ability to help clients achieve their financing goals.

 

Better rates are a familiar chant among brokers. Only 6.1% listed competitive rates as a reason to pick a non-bank lender over a mainstream bank:

• “Non-banks are getting better with easier conditions, but interest rates are still a barrier to many clients in this high cost of living environment”
• “It’s down to rates and fees, I’m afraid”

Lending products remain a central focus for brokers this year, who gave enthusiastic thumbs-ups for Alt Doc and Alt Doc Prime as the best non-bank products of the year from these leading lenders:

• Bluestone Alt Doc: “simple verification process and fast turnaround times”
• Pepper Money Alt Doc: “the best that I have seen so far; using BAS and self-declaration of income has been favourable for my clients” 
• Resimac Alt Doc Prime: “by far and away the cheapest solution for low-doc applications”

Two significant changes in brokers’ priorities are worthy of note: a sharp drop in brand recognition as a priority suggests brokers desire functional factors and practical support over brand identity; and a shift away from communications, training and development further underscores the need for more direct assistance from non-bank lenders and their representatives.

 

 

 

 

WHY USE A NON-BANK?

Non-banks saw a rebound in the number of broker loans put through, with brokers emphasising the need for flexibility to keep momentum going

 

MPA’s survey showed a significant recovery this year in the proportion of brokers who put loans through non-banks to 67%, nearly catching up with 2021’s high of 69%. This follows a sustained decline beginning in 2022 and bottoming out at just 50% in 2023.

This improvement shores up the non-bank lenders’ increased market share and attests to their efforts over the past year to boost their offerings, service to brokers and competitive products.

 

“The non-banks seem to be looking less for cookie-cutter applications and will take the time and dedicate the resources to assess scenarios individually,” nMB’s Gerald Foley explains. “Non-banks often need to be nimble, so having the ability to identify niches and change product parameters quickly to meet these opportunities helps brokers enormously.”

 

The percentage of brokers putting the lowest proportion of loans (20% or less) through a non-bank declined to 50% this year, versus 60% in 2023.

 

At the high end of loan volume, 10% of brokers put more than 60% of their loans through non-banks than last year, showing an encouraging increase from 8% in 2023.

 

Non-banks have picked up market share after a period of decline, which industry experts attribute to consumer confidence during uncertain economic times, and service propositions, among other factors. 

 

Loan Market’s David McQueen emphasises that non-banks are often faster at responding to consumer needs and less restricted by regulatory burdens. 

 

“Non-banks do not have the same buffer and affordability issues that banks have, and this has led to an increase in non-bank volume,” he explains. “In addition, they have been better at identifying underserved customers. SMSFs and self-employed customers are excellent examples of [where non-banks] have quickly gone to market and addressed customer needs.”

 

The expected proportion of loans forecast to go through non-banks in 2025 is significantly   lower than last year’s estimates – 36% versus 47% – suggesting that non-bank lenders may need to adapt their product and service offerings further to retain broker support and remain competitive.

 

While growing overall, the non-bank sector faces upcoming challenges and opportunities, including its inclusion in Australia’s Consumer Data Right open banking scheme, targeted for November 2024. ASIC is also investigating potential new regulations.

 

The opportunities lie in non-banks strengthening their oversight and transparency on governance and risk management, factors that will improve relationships with brokers and benefit their clients.

 

Brokers stated that non-bank lenders remain the best choice for diverse customers, particularly the self-employed. They offered the following reasons for this:

• Flexible credit policies: comments highlighted credit policy flexibility and understanding, and willingness to accommodate various client needs
• Specialised loan products: catering to niche markets, such as low doc, alt doc, SMSF, special situations, commercial loans and unique client requirements, allowing brokers to expand their businesses through diversification

 

In the ranking of reasons for using a non-bank, the significant rise in clients lacking standard documentation indicates that brokers serve more clients who don’t fit the traditional borrower mould, such as freelancers, small business owners and others who struggle with mainstream bank requirements.

 

On the other hand, the pronounced decline – to third place from top spot last year – in non-banks taking a wider view than credit score suggests that, while this factor is still relevant, non-banks may be the first choice for clients with documentation issues rather than poor credit.

 

Commenting on a lender’s SMSF product, one broker highlighted “strong servicing and lower level of documentation requirements compared to other lenders”.

 

Although personalised service placed fifth again this year, brokers ranked it higher than in 2023, highlighting the trend towards a tailored, client-centric approach that the top non-banks are leveraging to position themselves as the friendlier alternative to the mainstream’s more rigid bank experience.

 

 

 

INTENSIFYING COMPETITION DRIVES
NON-BANKS TO EXCEL

A positive shift in borrower perception towards non-bank lenders signals significant strides the sector has made in reputation and client satisfaction, offsetting concerns about brand awareness 

 

Brokers’ ratings of the benefits of using non-banks in 2024 spotlight the growing acceptance year-over-year of non-bank lenders and their products – and illuminates the highly competitive nature of the sector. Although there is a clear runaway winner, a relatively minor point difference between the gold, silver and bronze medallists highlights the close competition among the top contenders.

 

The top three non-banks overall won nine golds, five silvers and three bronzes across all categories except for interest rates. That accolade went to the fourth-place winner overall, Resimac.

 

 

Bluestone ended Pepper Money’s six-year streak, winning gold for BDM support as part of a strong performance overall. RedZed and Prospa earned a joint silver for turnaround times; RedZed took the bronze medal for communications, training and development; and Pepper Money won three golds for product range, product diversity opportunities and brand recognition.

 

Non-banks in the middle of the rankings with gold wins included ORDE Financial for commission structure.

 

As in previous years, the golds determined the ultimate champion, and Bluestone was crowned first place overall with a score of 4.07 out of 5. This result, and the other top lenders’ final tallies, outshone last year’s by a significant margin, a testament to the ongoing improvements brokers praised.

 

RedZed emerged among the top three non-bank lenders brokers wanted to see added to their aggregator panel this year, with ORDE Financial claiming first place and Liberty coming in second.

 

 

Interest rates are on one side of a double-edged sword for brokers doing business with non-banks, with 68% citing high rates and fees as the main barrier to flowing more business their way. This can send brokers and their clients to mainstream banks out of the sheer need for more affordable rates. Brokers appreciate the competitive edge non-banks bring to the market, but some have concerns:

• “Rates are the only reason I don’t use them more”
• “Most of my clients are seeking to refinance to [mainstream] banks within a year due to lower interest rates”
• “Five years ago, fewer non-bank lenders were available, and their rates were horrendous. With more competition in the market, they have become more viable”  
• “I think non-banks have improved their offerings but have a way to go in terms of rates”
• “Service levels are being delivered better than mainstream banking, and the real opportunity will be to get into mainstream lending at competitive LVR-banded rates”
• “Postcodes could also do with a review around the nation, as well coming alongside mainstream banking”

Some brokers took a more nuanced approach to non-banks’ pricing, citing their innovative product offerings and flexibility as standout:

• “With the major banks jacking up their interest rates on SMSF loans that they no longer want on their books, it’s an opportune time to offer the lower rates”
• “Flexible when the client hasn’t completed tax returns”
• “Takes into account different scenarios for self-employed clients that might not have two full years of financials at the same income level that they are currently earning”
• “Ability to consolidate tax debts and get clients out of bad situations at a cost that’s not overly expensive”
• “Enables me to put clients into a better financial situation, and then, with guidance, refinance them to a better interest rate once the situation improves, without me losing my income”

The second barrier to using non-banks was a lack of brand awareness, and while a consistent theme year after year, it ranked last on brokers’ importance scale in 2024. Non-bank brand awareness appears healthy, as just 12% of respondents noted it as a barrier this year, compared to 11% in 2023, 20% in 2022 and 27% in 2021.

 

The number of brokers whose clients were typically open to considering non-bank products has dramatically reversed, rising to 91% and stemming a three-year decline. Last year, 82% expressed confidence in non-bank products, compared to a high of 90% in 2021.

 

Bluestone won the gold medal for credit policy as well as BDM support, underscoring its strong product and credit knowledge that brokers perceive as a frontrunner.

 

“Having easy access to a local credit team to back up the BDMs also helps to workshop scenarios to be confident that the answer in the discussion will match the final answer when the application is submitted,” says nMB’s Gerald Foley.

 

Loan Market’s David McQueen adds, “The role a BDM plays in non-bank lending is critical. Non-banks often support more complex client needs as they can explain what they can and can’t do and respond quickly and correctly on scenarios.”

 

The survey’s overall results show that brokers increasingly value personalised service and adaptable policies in the complex lending environment. Direct and practical support in helping them grow their businesses trumps a non-bank lender’s brand image.

 

Non-banks that prioritise operational efficiency while balancing leading-edge service offerings will maintain broker satisfaction.

 

 

 

TECHNOLOGY, TURNAROUND AND SERVICE

A majority of brokers noted continued improvements in turnaround times, and there is a rising call for enhanced communication to process loans effectively

 

 

Non-bank lenders have heard brokers’ clarion call on turnaround times being crucial to making or breaking a deal. This year, a record-high majority of brokers – 87% – said turnaround times had improved or remained satisfactorily the same. Far fewer brokers than last year, 12% versus 17%, felt speed had worsened.

 

nMB’s Gerald Foley observes that most non-bank lenders deliver an acceptable turnaround time, making this factor much less of a differentiator than in previous years. 

 

“Differences occur when an application needs more time to understand the transaction’s pros rather than simply finding reasons to say no,” he says. “With risk-based pricing, non-banks often have greater flexibility.”

 

Brokers credited enhanced support from top non-bank lenders’ BDMs in quickly executing deals, giving a general sense that more specialist lenders offer quicker turnaround times on assessments, approvals and settlements.

 

Non-banks have strengthened their processes, resulting in faster turnaround times, as noted by brokers:

• “Most non-banks take a common-sense approach, so it helps when assessors pick up the phone and call the broker for a quick chat”
• “I had a loan looked at, approved and settled within days, and the service was first-class”
• “My BDMs push my deals to the front of the queue every time”

Brokers among the small group who believed that times had worsened noted the increased complexity of some deals and lenders’ operational inefficiencies as reasons for this:

 

• “More volume leads to slower turnaround times”
• “Staffing levels don’t seem appropriate”
• “It takes much longer when it is a little outside of the box”

 

 

Bluestone won gold in the turnaround times category with a hefty margin above its nearest competitor. Brokers mentioned the non-bank specifically for “its BDM support”, which consistently helps speed and efficiency.

 

Again this year, La Trobe Financial did not rank well for turnaround times. Still, it picked up four medals, including silver for interest rates and bronze for credit policy. Brokers also named La Trobe Financial as their preferred lender for foreign non-residents and commercial categories, niches in which it dominates.

 

Brokers’ suggestions for how non-banks could improve their service remain consistent with last year’s. However, slightly fewer brokers said simpler income verification and better-trained BDMs and credit assessors were problematic, demonstrating the progress non-banks have made in these areas. 

 

This year, there was a moderate rise in the number of brokers seeking better communication as a component of exceptional service. Feedback from survey respondents included:

• “Better written processes and after-care, plus better-written checklist and policy”
• “Better rates with higher borrowing capacity”
• “Assessors who understand valuations better”

The proportion of brokers who believed better technology could boost service levels remained consistent with 2023 at 24%, suggesting that the steady improvements non-banks had made hadn’t shifted brokers’ perceptions one way or the other.

 

None of this year’s top non-banks cracked four out of five marks from brokers for their online platform and services, underscoring the need to embrace new and emerging technologies to create seamless and broker-centric processes, stay at the cutting edge and increase market share.

 

 

 

 

WHAT YOU’RE SAYING

Do you think the non-banks have provided enough competition to the banks over the last year? Why/why not?