As the market share of non-bank lenders continues to grow, so too does the range, and quality, of their products on offer. The Adviser asked brokers to rank their top non-bank lender products as part of its annual Non-Bank Product of Choice survey. Malavika Santhebennur reveals which lender products are selling like hot cakes, and how they are taking up a bigger slice of the pie
In 2019, the environment was ripe for non-bank lenders, or non-authorised deposit-taking institutions (ADI), to grab a larger piece of the market share pie. Commissioner Kenneth Hayne released his final report of his findings from the banking royal commission, credit supplied by banks slowed due to tighter serviceability requirements, reduce their risk appetites, and looked to “simplify” their product offerings.
While non-banks have been increasing market share, this is not a trend that suddenly emerged last year.
According to the Reserve Bank of Australia (RBA) Financial Stability Review released in April 2019, the pendulum has swung in lending for property towards non-bank lenders over the past three years, with residential mortgage lending by non-banks estimated to have been growing much faster than the rate of banks’ mortgage lending.
According to the RBA review, non-bank residential mortgage lending is estimated to have grown by approximately 15 per cent per annum over recent years, which is well above lending growth by banks. This has resulted in their market share of outstanding lending continue to rise.
The RBA listed various factors that propelled non-banks’ market share, including banks’ repricing of certain types of home loans.
“Specifically, banks have increased the interest rates they charge on investor and interest-only (IO) loans, which are now on average around 50 basis points higher than interest rates on owner-occupier principal and interest loans,” the RBA said.
“Banks increased interest rates on these products as a way of meeting the investor and IO lending benchmarks introduced by the Australian Prudential Regulation Authority (APRA) in 2014 and 2017.
“Non-bank lenders, which were not required to meet APRA’s benchmarks, often do not apply this differential to investor and interest-only loans.”
The RBA also noted another reason for the increased market share of non-bank lenders is the perception that finance is more difficult to secure from the major banks. This has resulted in even some higher quality borrowers moving to non-bank lenders.
“The RBA’s liaison with non-bank lenders indicates that borrowers have been attracted by their faster approval times and the greater likelihood of approval compared with the major banks,” the central bank said.
The RBA emphasised financial stability risks currently remain limited because non-bank mortgage lenders account for less than 5 per cent of outstanding housing credit.
Furthermore, the RBA said it saw no signs of banks loosening their lending standards to compete with non-bank lenders. It instead noted banks have actually tightened lending standards since 2015, although competition remains for the highest quality borrowers.
The central bank noted non-bank lenders have also tightened their lending standards over recent years, even while writing a larger share of higher risk investor loans than before.
PwC Australia’s 2019 edition of its analysis of the major banks showed the major banks achieved lending growth at a headline level of 1.5 per cent year-on-year, lagging domestic system growth.
Mortgage lending, which PwC said was historically the growth engine for the major banks “sputtered”, growing at only 3.1 per cent at a system level, which was the lowest on record.
“Overall, the majors continue to cede market share to non-major banks and non-ADIs as they have done for some time,” PwC Australia said in its report.
The cherry on the cake
It is indeed interesting times for the bank and non-bank lending sectors as the industries continue to grapple with the aftermath of the banking royal commission, tightened lending standards, and updated guidance on responsible lending obligations from the Australian Securities and Investments Commission (ASIC).
In light of these changing trends in the non-bank lending sector, and the increasing array of products that are on offer to service customers who are increasingly falling outside of the banks’ credit policies, The Adviser once again asked brokers from around Australia for their thoughts on the products in the market.
The 2020 Product of Choice Survey polled 750 brokers from across the industry over January and February 2020, asking them about their satisfaction levels and sentiment around non-bank lender products, resulting in a ranking of the choicest products from non-bank lenders.
Given the increasing scope of non-bank products, this year’s survey asked brokers to rate non-bank lenders’ products across 11 different categories, almost double the number of categories from last year’s Non-Bank Product of Choice survey, which was across six segments.
The categories of the 2020 Product of Choice Survey are:
The results for 2020 showed the strength of the offerings in market, with several non-bank lenders retaining their top spots from last year.
Several lenders were ranked by brokers as having the best product for several different categories. Pepper was number one in two categories this year: near-prime and specialist loans,
Resimac ranked first in prime owner-occupied loans and prime investor loans once again this year, while Liberty Financial was named the non-bank with the best SME loans over $250,000, and SMSF loans for the third year in a row.
However, Liberty was dethroned in the SME loans under $250,000 category this year, coming second to GetCapital in the category.
We catch up with some of the top-ranked non-bank lenders to find out what they have done in the last year to help drive success.
Daniel Carde, general manager, distribution explains how their products have benefited brokers
Our product range enables us to lend when many others won’t. We have sharp pricing across our product range, from prime to specialist. The interest rate of our investment loans is based on security, not the loan purpose, so that can enable owner-occupied pricing to be available for investors, which has proven very popular.
In 2019, we enhanced our Loan Access Card feature for customers with Resimac-funded loans, providing far greater flexibility and more functionality for accessing loan account funds. The post-settlement customer experience has also been enhanced by recent upgrades to our online account portal.
This is an ongoing process. We conduct professional development days and our annual broker roadshow visits the five mainland capitals. We issue fortnightly broker updates that cover topics such as regulatory updates, rate changes and discounts, and other pieces of information of relevance to our broker network.
We have also created a new “BrokerZone” section on our website to improve access to our broker resources. This includes loan specifications and rates, calculators and forms, current SLAs, and an archive of our broker updates.
Aaron Milburn, general manager, mortgages and commercial lending, outlines how Pepper has been working with brokers
Our team of specialist underwriters review each deal and work directly with the broker to better understand the borrower’s individual circumstances. Core to our offering is the fact that we manually assess each application in line with our unique cascading model: always considering an application under our prime range first and automatically reassessing across our near-prime and specialist home loans if it does not fit our prime criteria. This ultimately gives brokers access to three products through a single application, while also potentially saving their client money on their interest rate and fees.
We continuously find new ways to provide actionable insights and tools for those who want to incorporate alternative lending into their toolkits of solutions. For example, our annual Insights Roadshow is designed to offer brokers the insights, tools, and expertise to thrive in the current lending environment.
We also have our Customer Conversion toolkit, which was built to help brokers offer genuine solutions with first-to-market tools such as the Pepper Product Selector, meaning brokers no longer need to consult a product guide or become an expert on Pepper’s cascading product model.
Peter Langham, CEO of Scottish Pacific, explains what makes the lender’s product stand out
Our solution is not just a cookie-cutter approach and business owners don’t have to put their family home on the line – they are able to use assets that already exist in their business, such as outstanding invoices or plant and equipment. Our SME Growth Index research shows that three out of four SMEs rely on personal credit cards to cover work expenses.
There are smarter ways for business owners to generate working capital, and we recognise the important role brokers play in making this happen.
Brokers are our strongest referral partners and we have an extremely close working relationship with our introducers, helping find the best options to support their clients’ working capital needs.
In the past year we have presented at or attended more than 200 professional development days, conferences and other broker events to bring awareness of how debtor finance and our other offerings can support businesses through all life stages from start-up to turnaround, from business acquisition to large scale-growth.
We’ve partnered with Australian Small Business and Family Enterprise Ombudsman to create the Business Funding Guide (for brokers, accountants and other trusted advisers) and FitsME Guide (for their SME clients).
GetCapital reveals a holistic approach to business finance
GetCapital’s multi-product solutions give brokers the flexibility to meet their clients’ needs at any stage of their business life cycle, from emerging to expansion and maturity. The combination of product features, pricing and relationship-driven service helps them provide a more holistic approach to business finance and deepen their client interactions.
Cory Bannister, chief lending officer, describes how the lender is taking advantage of opportunities
There is a unique opportunity for brokers to increase their market share of commercial business, with around $15 billion to $25 billion in unmet commercial loan needs available annually in the market. Commercial lending represents an upside opportunity for brokers looking to expand their businesses and diversify their product offering, revenue sources and client base.
James Boyle, CEO, touches on how the lender designed products to meet clients’ needs
With a range of flexible options, our free-thinking SME loans and fast turnaround times help entrepreneurial Australians secure the finance they need. As for SMSF loans, with no minimum contributions or SMSF size limits, our SMSF SuperCredit loan options support customers leverage the power of their SMSF with loan terms up to 20 years.
Mr Milburn, general manager, mortgages and commercial lending, outlines how Pepper has been working with brokers
Catering to an under-serviced and in some cases undervalued market requires flexibility, innovative products, and experience in understanding an applicant’s individual circumstances – which is why over the last 20 years that we have been in business, we have tried, tested, and evolved our products, credit policy, and processes to ensure that we provide the best outcome for the broker and their clients. We know that consistency in credit is important to brokers as it allows them to confidently recommend a particular lender, so we constantly work to help more families get into more homes with the right solution.
Beau Bertoli, co-founder and chief revenue officer, elucidates why the lender’s product resonated with brokers
Speed, service, support. Brokers know their small business clients are time-poor and need a fast decision. Our online application takes 10 minutes, with a response and funding possible in 24 hours. We’ve introduced increased loan amounts, longer loan terms, and fast track application processing, and offer flexible repayments that work for a small business’ cash flow.
Mr Carde, general manager, distribution explains how their products have benefited brokers
Our broker service proposition recognises the growing customer preference for the broker channel, with our Resimac-branded loans available exclusively via the third-party channel.
We offer a full range of prime and specialist mortgage options to our broker network at market-leading rates. Our loans are fully featured yet cost-effective, with benefits such as offset without an interest rate loading and online redraw without any fees. They also provide flexibility in repayment options with the convenience of either weekly, fortnightly, or monthly repayments.
Our service level agreement (SLA) turnaround times have been reduced to one day across full doc, alt doc prime, and specialist loans.
Mr Langham, CEO of Scottish Pacific, explains what makes the lender’s product stand out
ScotPac’s debtor finance product gives brokers new ways to create extra income streams for themselves, as well as to build deeper client relationships and grow their clients. We do the client assessment and broker training and support, and beyond debtor finance we offer their clients the widest range of solutions for businesses of all sizes, without needing the family home for security. Our broker introducers feel secure because of our 30-plus year history, our flexibility working with them to find the best solutions for their clients, and the fact we are a non-bank lender whose clients grow at three times the GDP.
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.
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