If you’re having difficulty getting a loan from the bank right now, don’t worry, you’re not alone. In September 2018, non-bank lending reached an 11-year high.
It seems that the banks have decided to close the door, especially to property investors, and this has many home buyers wondering about the options they might be able to get from non-bank lenders.
Some of this slowdown in activity is not the fault of lenders. The Australian Prudential Regulation Authority (APRA) has introduce a fair bit of controls, and the headlines about lenders haven’t been great in recent memory.
It seems that government regulators have taken to shedding light on some of the lending industry’s less than stellar business practices.
But this isn’t to say that all big lenders are out to get their customers. In fact, it’s much more of a case where a few bad apples are spoiling things for the rest.
Even so, all of this combines into fewer options for home buyers, which has left many with no other choice than to seek alternative sources of funding, specifically non-bank lenders.
What is a non-bank lender?
As the name suggests, a non-bank lender is any entity that lends out money that is not a bank. However, within this category, lenders are divided into one of two groups:
- Deposit-taking institutions. Examples of these included credit unions, building societies and mutual banks. They can take deposits and provide limited banking services.
- Non-deposit-taking institutions. These entities do not take in any deposits. Instead, they secure funding from elsewhere and use it to give out loans to qualified buyers.
These non-bank lenders really became popular during the 1990s, but many disappeared during the Global Financial Crisis. However, they provide much needed competition in the mortgage market, and because they are not subjected to the APRA’s regulations, they are able to provide loans when other financial institutions aren’t, making them a great option for people struggling to get a loan from the bank.
However, non-bank lenders are still safe. Back in the day, they were seen as shadier operations, ones that were trying to make quick money of unsuspecting buyers. But this is no longer the case. Recognising their place in the market, they have reshaped their image and become more reputable. Furthermore, they are still subjected to government regulation, so you don’t need to worry about your money.
Should You Use a Non-Bank Lender?
No matter if you’re getting a loan through a bank or if you’re going through a non-bank lender, buying property is still a financial decision. A non-bank lender might be a good option if you are having trouble securing a mortgage from the bank, but this doesn’t mean you should accept subpar offers.
Compare the interest rates you get from non-bank lenders and go with something that is going to make the most sense. If you’re making a smart investment, then a percentage point or two difference in interest rates might not make much of a difference. But what will make a difference is if you can’t get a loan at all.