With non-bank lending now revolutionising the way Australians borrow and invest, the country’s reliance on big lenders continues to wane. PEXA’s latest Buyer Deposits report reveals that while major banks continue to dominate, smaller banks now account for a little under half of all new residential mortgages.
While major banks, building societies, and credit unions remain the primary lenders of choice, its non-authorised deposit-taking institutions (ADIs) – aka non-banks – that have become an increasingly prevalent part of Australia’s residential home loan landscape.
For the uninitiated, non-bank lending refers to loans provided by institutions or individuals other than traditional banks. These typically include private money lenders, private mortgage lenders, and personal loan lenders.
Unlike banks, these lenders typically do not accept deposits but focus solely on lending and investment activities.
Nowhere is the growth of non-banks or traditional banks more evident than in settlement numbers.
While the volume of settlements experienced by major banks grew a modest 3.9% in FY24, the volume of new loans settled by non-banks surged 25.3% year on year.
Traditional banks turn more people away
Report data reveals that non-banks - subject to the same regulatory constraints as banks for lending - are playing an increasingly important role in securing finance for those who typically don’t pass muster with the major banks and/or more traditional lenders.
However, there tends to be a price to pay for borrowing from non-traditional lenders with Reserve Bank of Australia (RBA) data concluding that riskier than average non-bank loans typically command higher than average loan-to-income ratios.
This explains why non-bank loans tend to have a smaller median loan amount and the smallest share of loans with a loan to valuation ratio (LVR) above 80%.
PEXA data also suggests that major banks (and their subsidiaries) won more new loans in Victoria than NSW and QLD.
However, non-bank lenders are the biggest non-major players in NSW and Victoria.
“VIC has a higher proportion of young families and first home buyers, who are more likely to have lower incomes and have difficulty saving for a deposit, possibly needing to pay LMI or obtain a waiver,” PEXA reported.
“Furthermore, Melbourne has a healthy supply of high-density apartments, particularly in the CBD – some of which are smaller than 50 sqm and are sometimes considered too risky for financing.”
Bank consolidation
Unsurprisingly, the rise of non-banks mirrors the dwindling bank presence in Australia over the past two decades. Due to industry consolidation – required to achieve economies of scale and diversify products - the number of credit unions and building societies has fallen 84% from 188 in 2004 to 30 entities at the end of 2024.
PEXA data also reveals that over one half of the aggregate value of new mortgages is sourced through third parties, notably mortgage brokers, and this trend has only increased over time.
Interestingly, it's foreign subsidiaries and other domestic banks that benefit most, with over two thirds (75%) of their new mortgages, by value, sourced from these third parties alone.
Australian Banks by Total Residential Assets
Non-bank loans surge in Qld
While non-bank lending is more prevalent in all states, major banks have the lowest market share for aggregate value in Queensland.
Non-traditional bank lending growth has surged in the sunshine state where it accounts for around half of the market share of the refinances market (see table).
While the non-major bank share of financing for the aggregate value of new loans has also been declining in NSW, PEXA suspects this is more likely driven by major banks winning a large share of new loan volumes, rather than the non-majors financing relatively smaller loans.
Queensland aside, PEXA data suggests that non-major lenders are more competitive in the refinancing market than in new loans.
The aggregate value of refinancing previously peaked in the September quarter of 2023, after the RBA began to increase cash rates from April 2022 onwards.
“At that time, many mortgage holders had locked in incredibly low fixed-rate loans and there were concerns that a ‘mortgage cliff’, where borrowers, potentially unable to refinance because they wouldn’t be able meet the new serviceability criteria,” PEXA notes.
“However, there is very limited evidence that this had come to fruition.”
Why non-bank lending is becoming more popular
The rise of non-bank lending in Australia can be attributed to several factors:
Regulatory limitations in traditional banks: Australian banks operate under stringent regulatory frameworks that can limit their ability to lend, especially to small and medium-sized enterprises (SMEs) or individuals with unconventional financial profiles. This gap creates opportunities for personal loan lenders to step in and meet the needs of borrowers who may not qualify for traditional bank loans.
Speed and accessibility: Private money lenders are known for processing loans quickly and efficiently. Unlike banks, which often require extensive paperwork and weeks to approve a loan, non-bank lenders leverage streamlined processes to deliver funding in days or even hours. This speed is particularly appealing to borrowers facing time-sensitive financial needs.
Growing investor demand: Investors are increasingly drawn to non-bank lending because of its attractive returns.
Private lending opportunities often provide higher yields compared to traditional fixed-income investments. With the Australian economy stabilising post-pandemic, demand for alternative investment options is on the rise.
La Trobe Financial Non-Bank Lender of the Year
Earlier this week, La Trobe Financial, which has $20 billion in assets under management became Money Magazine’s Non-Bank Lender of the Year for the sixth consecutive year.
Cory Bannister, La Trobe Financials’ chief lending officer says while many lenders are moving toward automatable and one-size-fits-all products, La Trobe's credit team emphasises understanding the individual story behind each application.
Whether you're self-employed and need flexible income verification, an investor seeking personalised solutions, or a homeowner looking for a refinancing option outside traditional banking criteria… we have a ready-made solution that can be tailored to the specifics of your circumstances," says Bannister.
Alternative lender for residential mortgages, Resimac Group, which came in second placed provides home loan solutions to a wide range of customers including those with previous credit impairments.
PEXA data only reflects external refinancing, so borrowers that choose to internally refinance are not captured in this dataset.
