Thursday, September 29, 2022
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Broker busts non-bank myths


The rise of non-banks in Australia is continuing as mortgage brokers turn to those who provide alternative, better suited offerings for their clients.

With a forecasted sixth rate rise looming, non-banks are considered a financial crutch to Australian borrowers as the lending marketplace becomes increasingly competitive. The push to refinance has seen a 20% growth in household credit given by non-bank lenders as borrowers cast their net wider for more bespoke lending options.

Sydney mortgage director and broker David Sutantyo (pictured above), of lending firm Twelve Grains Capital, said misinformation was a major barrier to more Australians being considered for credit.

“The sector is on the rise, although widely held misconceptions around non-bank lending are one of the key barriers preventing more Australians from looking beyond bank lending,” Sutantyo said

“This is because non-traditional lenders take on more risk than the big banks and are often misunderstood. The unfortunate perception we still encounter in the community is that non-bank lending is a second-tier option reserved for those with a poor credit rating.”

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Sutantyo said the realty was that non-bank, or private lending, was a great option for borrowers across the board.

“This includes those who are perfectly eligible for bank-lending or those who may be non-conforming due to being newly self-employed, recently re-entering the job market, or having incomplete financials,” he said.

“Education is vital to ensuring more Australians have the opportunity to be considered for credit.”

Sutantyo said one of the top misconceptions regularly encountered around non-bank lending was non-bank lenders were less trustworthy than major banks.

“Non-banks must comply with the same consumer credit rules and regulations as any major bank,” he said. “They offer borrowers an alternative to getting a loan from a bank, which gives people more choice and often an opportunity they might otherwise not have.”

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Sutantyo said another misconception people had is that non-bank lending was riskier than with banks.

“The concern over risk, or loss of money, is negated by the structure of non-banks,” he said. 

“Their funding comes purely from the wholesale money market, not funds deposited by customers. When you borrow from a non-bank, you are not actually depositing any of your money with them, you are only repaying the loan amount you have been approved for.”

Sutantyo said some people thought non-bank lending options were only for people with poor credit scores or things to hide.

“Borrowers can often be turned down by major banks for failing to meet certain checkbox criteria and this may be the case for self-employed individuals who don’t have extensive PAYG summaries to provide, or for business owners who took a significant hit during COVID-19,” he said. 

“Non-bank lenders aren’t as rigid in their frameworks as major banks, so they can take all aspects of your financial situation into consideration, rather than applying blanket rules for approval.”

Sutantyo said non-bank lenders should not only be considered for niche circumstances.

“While it is true that non-bank lenders have a much wider range of products suited to different markets, they are also a prominent lending choice for common loan types such as home loans,” he said. “According to AUSTRAC, non-banks currently have a 10% share of Australia’s commercial real estate lending market, with this figure expected to grow by 10% a year through to 2024.” 

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