Time to read : 6 Minutes

Australia has always been closely tied to the Big 4 Banks, but when it comes to home loans, many of us are also open to considering smaller, boutique banks like Suncorp, ING, Bendigo and Adelaide Bank, Bank of Queensland, and so on.

But when it comes to non-bank lenders, some borrowers hesitate. This is often due to a lack of understanding about how non-bank lenders operate.

Many non-bank lenders emerged in the 1990s and 2000s. They declined a little during the 2008 Global Financial Crisis (GFC), but have gained popularity since 2015. 

Fast forward to today and… 

• with the cost of living crisis challenging would-be homeowners around the country

• the restrictive lending climate

• sky-high housing prices… 

is it possible that non-bank lenders can deliver what you need? Let’s find out.

What is a non-bank lender?

Also known as specialist lenders, non-bank lenders are financial organisations that lend money but don’t necessarily offer other kinds of finance products – like savings accounts or credit cards. These lenders might include: 

• Athena Home Loans

• Firstmac Australia

• La Trobe Financial

• Liberty

• Pepper Money

• Loans.com.au (part of non-bank lender Resimac)

• Tiimely Home (formerly Tic:Toc)

• Well Money

Note: Firstmac is one of Australia’s longest-running non-bank lenders.

What’s the difference between a bank and a non-bank lender?

The basic difference is that non-bank lenders can lend money but don’t accept deposits. Here are a few more distinctions:

One major difference is that while banks avoid lending to borrowers in unusual circumstances (in regards to income and/or credit), non-bank lenders are more likely to do so. 

For example, a non-bank lender might allow you to include child support payments as income, whereas a traditional bank will not usually do this. The more income you can ‘count’ on your loan application, the higher your chance of being approved for a home loan – and that could mean ‘owning’ a home faster.

Although non-bank loans can come with higher costs, they provide a path to home ownership for anyone who may otherwise be left out. 

Tip: it can also be easier to refinance to a bank after you’ve held your home loan with a non-bank lender for a few years. That’s because you’ll have a history demonstrating your ability to repay your home loan.

So if you’re struggling to gain access to the property market, a non-bank home loan can be an accessible stepping stone.

Are non-bank lenders safe?

The short answer is yes, non-bank lenders are safe. While they don’t hold banking licences, they’re still regulated by the National Consumer Credit Protection Act (NCCP) and the Australian Securities and Investment Commission (ASIC). 

They must also: 

• have a credit licence

• follow Australian Consumer Law and Privacy Law

• disclose their rates and fees clearly and accurately

• adhere to the ePayments Code. 

These regulations make non-bank lenders a safe option in Australia.

What if the non-bank lender goes under?

If your bank was to go under, your deposits are protected by the Government’s Financial Claims Scheme government guarantee. 

But… since non-bank lenders don’t take deposits, they can’t offer this guarantee. As a home loan borrower, this isn’t something you need to worry about. If your non-bank lender goes under, your mortgage would likely be bought by another lender, and you’d continue making repayments to your new lender without any loss.

Do non-bank lenders require a credit check to give you a home loan?

Yes, most non-bank lenders in Australia require a credit check before approving your home loan. But because they’re regulated differently from banks, non-bank lenders have more flexibility to accommodate all income streams and different types of employment, including: 

• self-employed borrowers

• casual income

• share dividends

• fluctuating credit histories

• borrowers with alternative residency status (like working visas)

• People discharged from bankruptcy or with recent payment ‘delinquencies’.

So, even if your situation isn’t perfect, a non-bank lender might be a better fit for you.

Can you apply for a home loan with a non-bank lender after being rejected by a bank?

Absolutely. Non-bank lenders specialise in helping borrowers who struggle to get approved by the regular banks. If you’ve battled to get a home loan before, a non-bank lender could be the solution you’re looking for.

Do non-bank lenders offer the same loan products as banks?

This depends on the specific lender. Some specialise in one type of borrower (eg self-employed people). Others offer nearly everything that banks do when it comes to a home loan, including: 

• fixed and variable interest rates

• split mortgages

• extra repayment options

• redraw facilities. 

Many non-bank lenders even provide low-doc or no-doc home loans with flexible lending requirements for the self-employed and/or those with imperfect credit histories.

Bottom line

The key takeaway is simple: when you’re shopping for a home loan, you don’t need to limit yourself to the big banks.

By exploring other lenders, you might find options that are better suited to your specific needs, especially if your financial circumstances aren’t standard.

Both bank and non-bank lenders must follow industry rules and regulations, but banks have additional oversight by APRA.

If you're thinking of getting a home loan, why not talk to the experts at Compare Club and see where it may take you.

Go deeper: 

What does a lender look at in a basic home loan application?

Financial disclaimer

The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.