Non-bank lenders: a broker's perfect partner

“Non-bank lenders offer superior service to that of the banks: faster turnaround times, personalised service and the ability for the broker to speak directly with the
credit decision-makers,” says Allan Savins, chief commercial officer at Resimac.

“We match that service proposition with a broader shopfront of products and top it off with some of the most competitive pricing and lowest fees available in the market,” he says.

And while non-banks operate across all lending areas, Royden D’Vaz, national manager for sales and marketing at Bluestone Mortgages says the sector’s economies of scale can make it challenging to compete with the banks.

“Many non-banks have products that cater for all but tend to focus their attention on a smaller range of products,” he says.

In a similar vein, Murray Cowan, managing director at Better Mortgage Management believes the non-bank sector has a greater competitive advantage in the alternative, non-conforming and credit-impaired space.

As does Cory Bannister, vice president and head of distribution at La Trobe Financial, who acknowledges their target market is the near-prime space.

“This covers loans that fall just outside the majors’ acceptance criteria, often as a result of minor credit impairment, along with scenarios that are slightly specialised in nature", he says.

Ray Hair, general manager for national sales at Homeloans says non-banks generally have a full suite of lending solutions, from competitively priced prime loans to low-doc and specialist loans.

“With six alternative funding sources Homeloans in particular is well positioned to meet the lending needs of most borrowers,” he says.

In it for the long haul

More and more frequently seen these days as a genuine alternative to the bank lenders, non-banks provide brokers with an opportunity to build long-term relationships with their customers.

“Non-bank lenders are a powerful tool in a broker’s arsenal,” says Mr Bannister, “as often the borrower will see the non-bank solution as something they couldn’t have otherwise obtained themselves without a finance broker’s assistance.”

Both Mr D’Vaz and Mr Cowan take the view that non-banks come into their own providing solutions to borrowers unable to secure a mortgage with a bank. The non-bank sector, they maintain, has the ability to provide a wider range of solutions with better service.

For Mr Savins the sector’s value proposition is intrinsically tied to its ability to be agile.

“Resimac is large enough to compete with the banks in all areas of residential lending, yet nimble enough that we can listen to feedback and swiftly make changes where necessary,” he says.

This gives the sector the ability to develop products and policies that best suit the “ever-changing” lending landscape. However, the sector’s value proposition doesn’t end with simply offering a broad range of products. It is just as important that the product suite is supported by an uncomplicated application and approval process.

The size of the fight in the dog

It’s no secret that the GFC took a large bite out of the non-bank sector. However, today most commentators agree that the sector has recovered and that it is beginning to make progress in regaining its lost market share.

According to Mr Hair it has demonstrated its adaptability and resilience in being able to find alternative funding sources.

Another issue for the sector during the GFC was that borrowers were drawn to the perceived security of the majors. But this has since changed, Mr D’Vaz says, with second-teir banks and non-bank lenders gaining back significant ground.

Mr Savins agrees that nonbank lenders have emerged from the GFC as a stronger force.

The sector has been able to adapt its business model in response to the evolving operating environment in a more effective manner than the bank lenders, he says.

“The GFC did result in some consolidation in our sector, however the sector now has stronger balance sheets and wholesale funding capabilities than it did before the crisis,” says Mr Savins.

More recently non-banks have benefitted from reductions in wholesale funding costs allowing them to continue to offer competitive interest rates.

Credit squeeze

Mr Bannister says there has been a steady increase in the use of non-bank lenders as a result of the GFC when many of the country’s largest institutions tightened their loan acceptance criteria. This, he says, has led to an increased footprint for the non-bank lending sector.

“The major banks and mortgage insurers are yet to fully relinquish their tight grip on credit criteria; therefore demand in this area has remained high and continues to grow.

“Still today, the biggest challenge for non-bank lenders has been to overcome people’s insistence on using a major bank, as generally they are the only finance brands they know of and hear about in the media, and are likely to have banked with them all of their life,” says Mr Bannister.

However, while the sector might be in a better place now than it was at the height of the GFC, according to Mr Cowan it’s still nowhere near the market-share it reached prior to the GFC.

“At least the non-bank sector can access funds at a competitive rate again, but obviously competition is fierce so improving market share is difficult in the current market,” he says.

The rise and rise

The non-banks are expected to continue to gain market share.

“Diminished competition in the market means non-banks will play an ever-increasing role in the coming years to provide choice and flexible solutions for brokers,” says Mr Savins.

Securitisation too will play a vital role in wholesale funding of various forms of consumer credit in Australia.

“The securitisation markets have historically enabled a funding source for non-banks, product innovation and price competitiveness,” he adds.

In addition, as long as low interest rates continue to fuel price wars amongst all lenders, including the non-banks, the whole market will seek out higher margin product niches. Given this is the non-bank’s acclaimed strong suite, this will play right into their hands. “Lower margins require improved efficiency and higher volumes to sustain profitability,” says Mr Hair.

Also, it is evident that consumers are increasingly using brokers to source the best deal possible – a trend that looks to be continuing.

“This broadens the reach of non-banks and allows us to provide finance to more customers,” says Mr D’Vaz.

Furthermore, the recent changes to capital requirements of the major banks for investment loans will help the non-bank sector recover ground.

“Increased capital requirements as proposed by the Basel Committee and the FSI Inquiry will ultimately reduce banks’ profitability if they maintain their current rates,” says Mr Cowan.

As a result banks will most likely need to increase their rates and or lend in other areas to maintain profitability, he says, opening opportunities for non-banks to
be able to offer more competitive pricing as they are not impacted by the Basel proposals.

The upshot is that an increase in non-bank volumes over the coming year and into the future can be expected, as more people become comfortable with nonbank alternatives and additional product initiatives unfold.

“As new generations of consumers who are more likely to pursue alternatives come through the finance system we expect a larger portion of them will use a lender where service is often more personal and products are tailored to meet their individual requirements,” says Mr Bannister.