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The non-banks have been proving themselves in more ways than one. Should the banks be worried?
Non-bank lenders were hard hit during the GFC. In 2007 they accounted for almost 14 per cent of the Australian mortgage market; that figure has since dropped to around 2 per cent.
But recently the non-banks have been hitting back in two important ways: personalised service and diverse product offerings. According to Australian Capital Home Loans director Barry Parker, it is safe to say, “Non-bank lenders can no longer be called a ‘lender of last resort’”.
Data shows that customers are starting to catch on. A recent straw poll conducted by The Adviser showed that around 50 per cent of respondents “frequently” write loans through non-bank lenders, with 35 per cent saying they did “sometimes” or they would consider it.
Meanwhile, recent media reports show the non-bank sector increased its share of home loans at the end of last year by more than twice the banks’ increase.
But how much of this is a concern for the banks? They remain quiet on the issue; however, most think it unlikely they would want to see their market share fall back to pre-GFC figures (down to 2007’s 84.9 per cent from the banks’ current market share of 94.0 per cent).
According to Mr Parker the growing competitiveness in rates could be one indicator that the banks are feeling threatened by the non-banking sector. “They’re discounting more today than they have in bygone years,” Mr Parker says.
“Do I think that’s because of us? I’m going to say yes, that would be one aspect of it.”
But managing director of Australian First Mortgages Iain Forbes says he has no doubt the banks are feeling threatened.
“Of course they are, just look at their interest rates,” says Mr Forbes. “If not for competition from the non-banks, the big banks would have a greater ability to charge more by way of rates and fees.
“The non-banks are trying to get back the market share they had prior to the GFC and the banks are trying to maintain their share. The battle is on.”
The gloves are off
The banks still dominate the finance and mortgage industry to a degree that many economists say is “worrying”. So what are the non-banks doing to shake things up?
For one thing, Mr Parker says non-bank lenders are offering the same services as the banks but, he says, “we do it better”.
“We’re a full financial services suite. It’s not just home loans and banking, it’s financial planning as well. That means appropriate asset protection and wealth creation strategies. So we do everything,” says Mr Parker.
“Why do we do it better? Because we’re focused on helping people in all aspects of their financial life.”
According to Mr Parker, non-bank lenders also have a big advantage because they’re independent. “That means we have a variety of choices that are more appropriate to our clients, rather than the monoline product range that the majors have,” he says. “If you go to CBA and you see a financial planner, you’re in their suite, so you only have access to their services.”
Better Mortgage Management’s director, Murray Cowan, agrees, adding that having a diverse product range goes hand in hand with providing a more personalised service.
“It means that more time and care is taken to understand an individual’s circumstances,” says Mr Cowan. “Every loan application we receive is personally assessed.”
Finance Brokers Association of Australia chief executive Peter White says the non-bank lenders have proven they’re here to stay.
And he says that’s something that should be encouraged by everyone, even the banks. “I suppose if the banks put their hand on their hearts, they’d probably wish non-bank lenders weren’t there,” says Mr White.
“But by the same token it’s a very good thing to have them there, for the whole economy.”
Mr White argues that it was the non-bank sector that first brought product diversity and competitiveness to the local market.
“Until then we were really controlled by the major banks. Competition is good for the soul,” he says.
