When deciding on a home loan provider, many people choose to approach their own bank in the first instance, believing it makes sense to work with a lender already managing their everyday banking. This is not always the best option however, and it could mean missing out on better deals. To help you decide on the right lender, we’ve outlined some of the pros and cons of big banks, small banks and non-banks.
What are big banks?
Australia’s banking system is dominated by four major banks: Commonwealth Bank of Australia, Westpac Banking Corporation, Australia and New Zealand Banking Group, and National Australia Bank.
Whilst the big four banks account for a significant proportion of the Australian mortgage market, that doesn’t mean they’re the only lenders who will consider your application for a home loan.
The biggest pro about the big banks is their sense of security: Many borrowers feel safer knowing they’re working with an established institution that is regulated under the Australian Prudential Regulatory Authority (APRA).
On the other hand, the big banks may not have as many tailored loan solutions and may be seen as having a less personalised approach to customer service. The big banks may also have stricter lending criteria and higher overhead costs which could be passed onto their customers as fees.
What are small banks?
The smaller banks with a presence across Australia are typically regional banks and include the Bendigo and Adelaide Bank, Suncorp-Metway, the Bank of Queensland and ME Bank.
Smaller lenders tend to offer fewer fees because of the reduced costs of running their business – fewer branches and less marketing expenses that are passed on to customers in the form of fees.
Smaller banks are often seen as providing a more personalised customer experience and a greater level of flexibility on terms. And because they’re smaller, usually with a much simpler reporting structure, loan applications can often be turned around far quicker.
However, during times of economic uncertainty, smaller lenders can be more vulnerable to negative changes.
What are non-bank lenders?
As the title implies, non-bank lenders are institutions other than banks, credit unions or building societies that offer loan products to customers. Whilst non-bank lenders don’t hold a banking licence, they are tightly regulated by the Consumer Credit Code and the Australian Securities and Investments Commission (ASIC).
Non-bank lenders are privately owned and not mutual, typically relying on wholesale sources to get their funding. Whilst their services may be limited compared to banks, they do offer a number of loan products, often providing very competitive rates and a solution to borrowers who don’t meet bank lending criteria: Those with a less than desirable credit history, low deposit or variable income.
On the negative side, being smaller institutions, non-bank lenders can be more vulnerable to economic conditions: When the Global Finical Crisis hit, for example, a number of lenders withdrew from the market.
It pays to shop around
There is no right or wrong when it comes to choosing between a big bank, small bank or non-bank lender, and essentially it comes down to your specific circumstances and priorities. But there’s no doubt that it pays to shop around and compare lenders.
A Mortgage Express mortgage broker can do the hard work for you, shopping around and comparing loans to find the right one for you. If you’d like impartial advice around the best home loan to fit your unique situation, get in touch with one of our brokers today.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Credit Ombudsman Services Ltd (COSL) | Member of Choice Aggregation Services.