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In the US, non-banks were responsible for almost two-thirds of home loans in 2021. Could Australia be following the same trend?
According to the MFAA’s Industry Intelligence Service, the value of Australian home loans with non-bank lenders grew 7.7% in the six months between October 2021 to March 2022, compared with the previous two quarters. While the big four banks still dominate Australia’s residential lending market, non-bank lenders are chipping away at their market share – by offering many borrowers and their brokers more flexible options.
“During the January to March 2022 quarter, major bank market share dropped back to 42.6% – a 3.2% decrease on the previous quarter. Non-bank lenders, credit unions and white label loan providers are taking that share,” says MFAA’s Stephen Hale Head of Marketing and Communications.
Leading aggregators, including FAST, Connective and VOW, are also expanding their lending panel options to include more specialist non-bank lenders. And Australians are happy to be guided through a wider range of options. A recent survey of 500 Australians who used a mortgage broker in the past three years found 86% were comfortable being offered a loan from outside the ‘Big Four’ banks.
So why is there such a surge in non-bank lending?
The value of greater borrowing capacity
In October 2021, APRA increased the interest rate serviceability buffer for banks, which constrained the maximum loan size for some borrowers.
“If banks are only willing to lend at lower loan to value ratios than last year, it prices out a growing number of borrowers,” observes Assetline Capital Managing Director George Khoury. “They don’t have the cash reserves to make up the shortfall – ultimately, that can make the difference between buying the property they want, and missing the market completely.”
Non-bank lenders like Assetline are still lending at up to 80% LVRs on a 30 year mortgage, and can structure flexible loan options including bridging finance. That makes it simpler for brokers to solve more funding challenges along the transaction journey – for more clients.
“Ultimately, we’re setting our clients up with a strategy to achieve their goal. And we can bring together a number of different lending products to make that happen,” George adds.
The ability to tick different boxes
Stephen says non-bank lenders are also playing an important role in helping brokers diversify into commercial lending – including business loans, commercial property investments, and asset finance.
“The value of settled commercial lending hit an all-time peak, recording a 55.6% year on year increase,” he says. Almost a third of brokers wrote commercial loans during that six-month period – so if you aren’t already servicing the more diverse needs of small business owner clients, you might want to start looking at accreditation options.
That’s because there are around 2.35million small business owners in Australia – including around 1.4million sole traders. Many are finding it increasingly difficult to meet the income serviceability requirements major banks demand, including two years of profit and loss statements with positive bottom lines.
Meanwhile, there are also 600,000 Self-Managed Super Funds (SMSFs) in Australia – and while many would like to diversify their retirement investments into property, the major banks won’t lend to them. And both these groups are growing – between 2021 and 2022, the number of sole proprietors jumped 31%.
Non-bank lenders are stepping in to fill the borrowing gap for self-employed borrowers, with more flexible ways to prove income including alt doc loans. They can also take a broader view of SMSF income sources, including contributions and rental income.
“It’s important to work with specialist lenders who can guide you through the different assessment criteria and requirements for business borrowers and SMSFs,” Stephen suggests.
The opportunities for trusted brokers
With a greater number of mortgage, bridging and construction loans available, mortgage brokers are increasingly valued for their ability to navigate all the options and help borrowers make the right decision about one of their biggest financial commitments.
In March alone, brokers handled almost 70% of all new residential mortgages – and they received on average remuneration (before costs) of $195,534, the highest result recorded, according to the MFAA. And even though property values have softened since then, the value of broker-originated loans continued to grow during the June 2022 quarter, to an all-time high.
“It is clear consumers see the benefits of using a mortgage broker. They can present a wider choice of different lenders and products to their clients,” says Stephen.
And for brokers to sustain that revenue growth in a more challenging market, they’ll need to continue diversifying their lender panel and product range to help more customers purchase or refinance.
For Loan Market broker Grant Rheuben, working with a non-bank lender opened the door to much larger commercial loans – and significant growth opportunities as a result. “As brokers, we only get remunerated on a successful outcome,” he says.
Grant’s first loan with Assetline Capital was, at the time, the largest deal he had done.
“Now we’re getting more and more transactions of that size. Knowing what a non-bank lender like Assetline Capital could deliver gave me confidence that I could add value to that process.”
To learn more about Assetline Capital’s Horizon Mortgage and full range of non-bank lending solutions, please get in touch.
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