Third Party Lending Report - Non-Bank Lenders 2016

 Partnered by

Which lenders are offering brokers and customers the service, products and support they actually need?

THE AUSTRALIAN non-bank lending sector holds an incredibly small share of the total mortgage market.

However, it remains critically important for a number of reasons.

Non- banks add competition to a home loan market heavily dominated by the big four banks. They also cover a wide range of alternative options for Australian borrowers, from non-conforming and specialist lending to short-term finance and business funding.

While the non-banks offer brokers and their clients flexible solutions, it’s a two-way street. These lenders rely heavily on brokers to source clients and write new business.

Given the diversified nature of this space – in which multiple lenders operate in a number of niche segments – for the purposes of this report, The Adviser has broken down the non-bank market into the following areas:

• Specialist lenders
• Mortgage managers
• Commercial lenders
• Equipment, leasing and business finance lenders
• Cash flow and debtor finance lenders
• Short-term lenders

The Adviser’s Third-Party Lending Report – Non-Banks has ranked lenders in each category based on comprehensive feedback from almost 800 brokers across Australia. Each non-bank lender was assessed on its products, service and commission. The final ranking of each category is provided in this report.

A WORD FROM OUR PARTNER

THE CONSOLIDATION of mortgage managers in the non-bank sector has been playing out for some time and continued in 2015.

The past 12 months have seen plenty of examples of this. In March last year, Australian First Mortgage (AFM) announced that it had been folded into Queensland-based non-bank lender National Mortgage Company (NMC) in a move that saw the new combined entity grow its loan book to more than $4 billion.

AFM managing director Tanya White says the deal will see the combined group write $1 billion per year in new business and generate annual revenue of more than $30 million.

"The merger complements both of our existing operations and will provide our brokers and their customers with higher levels of service and support,” she says.

“It will combine NMC’s backoffice capabilities with AFM’s broker distribution platform and robust branding to build scale and growth.

“In addition, coupling AFM’s national footprint and deep aggregator network with NMC’s operational infrastructure will put the merged entity amongst the largest non-bank lenders in the country, where it can access increased funding lines at very competitive pricing.”

Meanwhile, one of the most publicised acquisitions – and further evidence of a consolidating non-bank sector – was Yellow Brick Road’s purchase of Resi Mortgage Corporation for $36 million.

The deal was announced in mid- 2014 and YBR has since rebranded a number of Resi stores. YBR chairman Mark Bouris says the deal offered a “complementary business model in mortgage origination and management” and “significant opportunities for growth” of YBR products through the Resi network.

Importantly, Mr Bouris highlighted that the acquisition was another important milestone in YBR’s strategy to become “a leader in the non bank sector”.

Consolidation has also been evident in other pockets of the sector, such as the highly competitive SME lending market.

Scottish Pacific finalised its acquisition of Bibby Financial Services on 31 December 2015, with the combined business now employing almost 300 staff, handling approximately $10 billion of annual sales and providing some $700 million of funding to clients.

Scottish Pacific CEO Peter Langham says he expects the deal will enable the group to offer an even wider range of products, services and solutions to brokers’ clients.

“Scottish Pacific and Bibby have built our success on working closely with brokers and other referrers, as well as understanding and supporting their clients’ businesses,” he says.

Asked why the group decided to complete the acquisition, Mr Langham explains that Bibby has a number of business products and services that Scottish Pacific did not have expertise in, “so it complements what we’re already doing”.

“We already had a very strong offering as a working capital lender for SMEs, and now we can provide an even more comprehensive funding alternative for small businesses looking to grow, whether domestically or overseas,” he says.

“Customers have still got access to the facilities they’ve always had – we’re now just a much bigger organisation.”

Mr Langham adds that Scottish Pacific’s focus in 2016 will be on continuing to provide the products and level of service that it has historically provided, investing in business improvement ideas, and researching other ways to satisfy the demands of SME borrowers.

He also hinted that an ASX listing may be on the cards.

LISTED GROUPS EXPANDING THEIR OFFERINGS

Two of the biggest non-bank lenders in the market, Pepper and Homeloans, have been highly active in the third-party channel over the past 12 months.

Both ASX-listed institutions achieved top rankings in this year’s report: brokers ranked Pepper as the nation’s best specialist lender, while Homeloans took the top spot in the mortgage manager category.

Pepper has set itself apart from the rest of the non-bank sector, with its IPO in July 2015 drawing attention to the group’s broader reach.

Pepper, which operates in a number of international markets outside Australia including the UK, South Korea, Spain and Hong Kong, is fast becoming an important source of funding, and is rapidly taking a greater share of broker originated home loans.

While Pepper was once considered a non-conforming lender, the group now operates in the prime space, has added a popular asset finance offering and is soon to launch a new customer facing brand, Pepper Money, which will no doubt lift its visibility among Australian borrowers.

 Meanwhile, Homeloans has been busy launching a range of new innovative products, such as its near-prime Homeloans Envizion product earlier this year and its Homeloans Accelerate Red Construction product in December 2015.

The listed lender has been operating for 30 years and last year acquired Queensland-based mortgage manager Barnes Home Loans.

The acquisition saw Homeloans grow its loan book by $500 million.

MUTUALS POSE A POTENTIAL THREAT 

The big banks and non-majors are traditionally regarded as the biggest threats to the non-banks. However, in recent months the mutuals have been gaining a decent amount of market share.

The mutual sector is not unlike the non-bank sector in that multiple lenders operate in a small segment of the mortgage market.

Australia’s building societies and credit unions are essentially self-funded and have clearly seen the upside of dialling up their use of mortgage brokers over the past 12 months.

The mutuals have been targeted in their approach, going after certain product areas such as fixed-rate mortgages.

While they pose a potential threat to the non-banks, anecdotal evidence suggests that strong service levels, greater flexibility, access to credit departments and a well-established reliance on brokers mean non-banks still have a competitive edge.

Mutual lenders may choose to ramp up their broker distribution intermittently, but the fact that most non-banks have no branch network and therefore rely exclusively on the third-party channel suggests that they have a much stronger relationship with the broker market.

REGULATORY CHANGES BENEFITTING THE SECTOR

APRA’s decision to slow investor lending by the ADIs has led to an increasing number of these types of loans being channelled to the non-banks.

The 10 per cent growth speed limit imposed on banks’ investor loan books – as well as higher capital requirements – has led to more rigid policies and higher rates from the banks.

The non-banks have used this to draw more attention to their flexibility and, at times, sharper pricing.

Liberty Financial has been actively pursuing the space over the past 12 months. The lender told The Adviser it is “well positioned to offer high-performance investment loan products” – both in terms of rate and flexibility of lending criteria.

“If you’ve got a client who wants to invest in property and has an existing portfolio, you’ll need to look beyond the banks, to lenders like Liberty that have a more free-thinking approach to how to treat existing investment debt,” Liberty Network Services managing director Brendan O’Donnell says.

“If every dollar counts – then it may be time to put other lenders in front of your customers.

“Knowing your options as a broker will always improve your outlook, but finding a partner that’s just as determined to embrace change and forge ahead in the industry is even more important in times like these.”

Smartmove co-founder and director Simon Orbell says his Sydney brokerage is already starting to use specialist lenders for investor loans.

Mr Orbell says the smaller players are able to take a unique and more nimble approach to serviceability and credit policies, enabling them to better create and target niche markets.

“We think that will only continue as lenders realign themselves and find out where those new niches fit,” he says.

With the third-party channel adapting to pricing and policy changes, Mr Orbell says specialist lending is something that most businesses should be looking at a little more closely.

“Not necessarily for the non-conforming deals but more the specialist piece for investors,” he says.

An overwhelming number of brokers commented on the lack of consumer awareness of the non-bank sector – which can obviously create some headaches and challenges.

One broker commented that “education of the general populace” about the non-bank offering was a priority.

“Most individuals are not aware of how many other lenders are out there and the fact that the non-banks look more at the individual than the big four,” they said.

“Their level of service and commitment to helping not only the brokers but the clients is fantastic. They are much more open and aware of the changing parameters of the economic arena and people’s needs within it.”

Another broker commented that non-bank lenders “have good products” but could improve in areas such as marketing to “help the general public understand who non-bank lenders are and how they can benefit customers”.

One broker suggested that the non-banks should “provide a professional quality brochure relating to their industry accolades and detailing the key points of difference of a non-bank, to boost credibility”.

These sentiments were echoed by another broker, who said the non-banks need to “advertise or educate clients of their true potential and strength in the industry”.

However, according to Finance Made Easy director and Elite Business Writer Tony Bice, such sentiments are nothing new.

“I have heard these comments many times over many years,” Mr Bice says.

“It is the broker’s responsibility to educate their clients about the options available to them, and that includes the non-banks.”

Mr Bice, who was surveyed for the report, says approximately half of his home loan deals are written with non-bank lenders.

“I can’t remember the last time I wrote a vanilla deal where the client had their deposit, everything was squeaky clean and you could slot it into the CBA or Westpac,” he says.

“Those days are gone. Every deal you get these days is challenging, so the more non-bank offerings you have, the easier it’s going to be to get the right policy for your client.”

Many of the brokers surveyed for the report applauded the non- bank lenders for their personal service and fast turnaround times, something Mr Bice says is critically important.

“It is paramount to your business,” he says. “The client doesn’t see the lender as the one holding things up, they only see the broker.

“If I’m writing an application and I know I have non-bank lenders with turnaround times of two or three days, and I can have direct access to their credit teams, then I’m going to give them the loan every day of the week.”

Written by James Mitchell

Last Updated: 09 March 2022

Published: 04 March 2016