Using non-major banks

27 Dec 2019
Bookshelf

The Australian big four banks are larger than most think and their commanding market share of >80% of residential mortgages means they have very strong pricing power. The strength of our banks is systematically important to our economy but the profitability of our major banks is many times greater than other developed nations.

Successful property investors typically diversify their loans across multiple banks which can be beneficial by making sure you can seek attractive rates and terms, as well as making sure you can access credit once your portfolio. Banks change their risk appetites to borrowers, certain postcodes often so it's important to re-evaluate the terms and rates you are receiving to stop you from being gouged.

Loans from non-major banks include anything from tier 2 lenders such as Suncorp and Bank of Queensland, as well as, non-bank institutions and online lenders such as Athena.

Non-major bank lenders often provide materially better interest rates and terms sometimes by up to 0.5% and differences in lending criteria might mean that you can borrow significantly more from these institutions

However, some things to be careful about are:

  1. Check their history - some companies open new lenders often and entice customers by offering low rates that are raised at some point, outside of RBA rate cycles. Look for institutions that have been around for more than 7 years
  2. Speed of application - these institutions typically process loans a slower pace than major banks and so don't get caught out buying a property without having finance in place
  3. Teaser rates and specials - some rates and terms might only last for short period of the loan and hence can end up costing you more in the long run
  4. It's not just about the best rates - lending terms, availability of credit, fees and offset facilities should all be considered when choosing the right loan option

In summary, don't feel the need to only rely on the major banks to cover your lending needs. A professional mortgage broker can guide you through the available options and be vital in ensuring you have the best terms, rates and availability of credit.