Non-Bank Lending: What, How and Why?
The Australian mortgage lending market is dominated by major banks, but a growing number of borrowers are turning to non-bank lenders for flexible and competitive financing options. Non-bank lenders operate outside the regulatory framework of the Australian Prudential Regulation Authority (APRA), which allows them to offer unique loan products that cater to individuals and businesses who may not fit traditional bank criteria.
What Are Non-Bank Lenders?
Non-bank lenders are financial institutions that provide mortgage lending services without holding an Australian banking license. These lenders do not take deposits but instead source their funds from wholesale markets, other Major Banks, securitisation, and private investors. Due to their funding models and reduced regulatory constraints, they often have the flexibility to approve loans that banks might decline.
Why Choose a Non-Bank Lender?
There are several reasons why borrowers turn to non-bank lenders, including:
Greater Flexibility: Non-bank lenders can assess loan applications on a case-by-case basis rather than strictly adhering to rigid criteria.
Competitive Rates: While historically perceived as more expensive, many non-bank lenders now offer competitive rates that rival traditional banks.
Alternative Loan Structures: Non-banks provide tailored solutions such as interest-only loans, no-frills variable rate loans, and low-documentation loans for self-employed borrowers.
Faster Approvals: With streamlined processes, borrowers often experience quicker turnaround times compared to traditional banks.
Catering to Niche Borrowers: They specialise in assisting borrowers with non-traditional income streams, credit impairments, or unusual property types.
Ability to clear business tax debt and release equity from Residential Property for business purposes: The majority of major bank lenders adhere towards loan purpose when structuring a loan product, and do not accept applicants with business tax debt as this implies a cashflow issue in the business. Non-bank lenders have a larger focus on the property security taken instead, and are required to clear business tax debt when refinancing property and releasing equity.
The Option of Low-Doc Loans
One of the most attractive products offered by non-bank lenders are Low-Document Loans. These are designed for self-employed borrowers, freelancers, and business owners who may not have up-to-date financial statements required by major banks. This loan option only applies to self employed borrowers as there is no acceptable reason to a lender as to why a PAYG employee would not be able to provide payslips.
No Document Loans do not exist for residential loans due to NCCP Act and Best Interest Duties. Under the law, brokers and financial institutions are required to make reasonable enquiries to ensure that the loan product offered is not unsuitable for their purposes, which include verifying the ability to afford the proposed loan.
Features of a Low-Doc Loan
Income Verification Alternatives: Instead of full tax returns for the group business structure of a client, borrowers can provide alternative proof of income such as bank statements, Business Activity Statements (BAS) and accountant declarations.
Higher Loan-to-Value Ratios (LVR): Lenders allow borrowers to borrow up to 90% for residential property purchases, as well as releasing equity up to 80%. However, you are paying a premium for this leverage position and along with Lender Mortgage Insurance/Risk Fees.
Flexible Repayment Terms: Options include principal and interest or interest-only repayments.
Higher Interest Rates: Due to the increased risk, interest rates are generally circa 1% higher than those for full-documentation loans.
Available for Various Property Types: Low-doc loans can be used for residential, commercial, and investment properties.
Who Can Benefit from a Non-Bank Loan?
Non-bank mortgage solutions are ideal for:
Self-employed borrowers who lack traditional income documentation.
Investors looking for higher LVRs or alternative lending structures.
Borrowers with credit impairments who need a second-chance loan.
Foreign income earners who may struggle to meet traditional bank requirements.
Property developers and business owners requiring alternative financing solutions.
Conclusion
The non-bank lending sector plays a crucial role in providing mortgage solutions that traditional banks may not accommodate, particularly in high interest rate markets where loan affordability is stretched. Whether you need a low-doc loan, an investment mortgage, or a flexible loan structure, non-bank lenders offer a compelling alternative for borrowers seeking tailored financial solutions.
If you’re considering a non-bank mortgage, it’s essential to compare different lenders, understand the loan terms, and work with a mortgage broker who can guide you toward the best option for your financial need. At Loan Central Hub, we are experts with working with Australian business owners and can assist with a large variety of loan products to enhance your financial position.
