Brokers have revealed that rising rates and bank buffers are pushing more clients into non‑bank mortgages – but often only as a tightly managed stopgap.
Non‑bank lenders are taking a larger role in Australia’s mortgage market as brokers juggle APRA’s 3 percentage point serviceability buffer and an elevated cash rate, with several brokers reporting higher non‑bank flows and shifting use cases.
Non‑bank share rising – but cautiously
Sydney broker Tony Xia, principal consultant at The Mortgage Agency, told The Adviser that his own book was showing a steady tilt towards non‑banks as credit conditions tightened.
“In FY25, nonbanks made up about 8 per cent of our volume, and for FY26, we are tracking toward 13 per cent,” Xia said and added that the figure could easily reach 20 per cent if current servicing constraints persisted.
“However, as a business, we are highly protective of our client’s cash flow.
“We consciously choose not to stretch them to their absolute limits, ensuring they have the capacity to repay and sustain a healthy lifestyle, especially in this high‑interest‑rate environment.”
Xia said non‑banks increasingly appeared in his early planning for long‑term investors – but only after he had exhausted what the major banks would allow under current buffers.
“We do this on a regular basis now, especially when mapping out long-term investment plans for our clients,” he said.
“But our core process remains the same: we maximise the clients’ borrowing capacity with major lenders first, and once they are capped out, we then propose nonbank lending solutions.”
Price shock still deterring many investors
Even as serviceability pressures nudge more scenarios towards non‑banks, Xia said the pricing gap was placing a major brake on volumes.
“They are 100 per cent wary and often a bit scared when nonbank products are put forward, but this is almost entirely driven by the rates, which can be up to 2.5 per cent higher than the majors,” he said.
He said that gap was particularly jarring when investors were already digesting higher costs on mainstream loans.
“For context, major bank investment interest-only rates are sitting around 6 per cent, which is already making clients cautious,” he said.
“When you propose a nonbank solution sitting anywhere from 7.25 per cent to 8.5 per cent just to keep them investing, the rate shock alone is enough to scare off a lot of potential investors.”
Despite the sticker sell, Xia said he believed non‑banks had become a near‑default plan B once a major bank declined a deal on servicing grounds.
“Honestly, I’d say comfortably 10 out of 10 times a deal that fails borrowing power with a major can potentially be reworked to fit a nonbank,” he said.
From last resort to preferred option
Trelos Finance director Nick Lissikatos said the shift had been more dramatic, with non‑banks now accounting for roughly a quarter of his settlements.
“Closer to 25 per cent, a massive uptake from around 10 per cent before,” he said of his current non‑bank share.
Lissikatos said non‑banks were once treated as fringe options, yet now dominated client conversations as policy and products continued to progress.
“Where these banks were previously excluded, they’re now almost favoured in all scenarios,” he said.
“As more non-banks enter the space, the quality/value that they bring now rivals the majors.”
He said he still encountered an initially apprehensive response – but added that a structured research process helped clients understand the trade‑offs between policy flexibility, speed, and rates.
“Fear, but as we do more research they start to see that it just makes sense,” he said.
He also noted that assessment buffers acted as the single biggest point of difference.
“Definitely buffers, 3 per cent in this market simply is unrealistic. The non-banks know this and have position themselves strongly at 1–2 per cent to win market share,” Lissikatos said.
Servicing rules and living costs drive workarounds
For Melissa Burt, principal at Mortgage Choice Modbury, the appeal of non‑banks is often most obvious in the servicing line by line, especially for families with private education and health‑related costs.
“Mortgage Choice Freedom (funded by Athena Home Loans) has a borrowing capacity significantly higher than the major banks, this is mainly due to how they assess living expenses,” she said.
Burt said mainstream calculators could be unforgiving where private school fees and insurance premiums were involved.
“With the impact of living expenses, items like private health insurance and private school fees can heavily penalise a borrower at a major bank. If you have a family with three children in private school, their borrowing capacity is often ‘shot’ at a big four lender,” she explained.
She said that, provided brokers were disciplined about coaching households on realistic repayments, non‑banks could deliver outcomes that would otherwise be blocked by rigid expense weightings.
“To be honest, I think some of the traditional rules are a bit crazy, I don’t fully understand why the mainstream industry weighs private school fees and health insurance so heavily against a borrower’s capacity,” she said.
Non-banks seen as tactical bridge as opposed to permanent base
Melbourne broker Harrison Handley, a residential mortgage broker with Loan Scope, painted a more nuanced picture and said the overall non‑bank share had been broadly stable for two years – but that the mix and intent behind those loans had shifted.
Handley said there was still a perception that non‑banks equated to permanently higher rate and added that he was increasingly using them as a bridge into the mainstream.
“While non-banks typically have higher initial interest rates, there’s a misconception that they can’t offer competitive pricing,” he said.
“Currently, I’m working with clients who purchased through non-banks 12 months ago and now, with improved credit profiles, are refinancing to more competitive products, often achieving rate reductions of 1–1.5 per cent.”
He said he actively framed non‑banks as provisional for most borrowers – aside from specific niches.
“I personally see them as temporary measures, except for individual that are foreign self-employed in which case it is their only solution,” Handley said.
Let us know what you think of the non-bank lenders. Take part in The Adviser’s 2026 Broker Product of Choice: Non-Banks Survey, which invites brokers to recognise the lenders delivering standout products across 12 key lending categories across key market segments.
Survey responses are anonymous and aggregated, with results featured in a special edition of The Adviser magazine highlighting the lenders setting the benchmark in the non-bank space.
It takes just three minutes to complete. Submit your vote before Saturday, 25 April 2026, for your chance to win a $500 Prezzee e-gift card. Vote now.
[Related: Non-bank lenders will underpin Australia’s 2026 credit landscape]
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