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There’s a lot more than the big four

Why smaller lenders are making a big change in banking.

The history of Australian banking has always been dominated by the big four – ANZ, Commonwealth Bank, NAB and Westpac. But more Australians than ever are now turning to smaller lenders and non-banks to finance their home loans.

Is your loyalty worth it?

Many of us have gone to one of the big four for a home loan because maybe we had our first savings account from them when we were young, and probably because that’s where our parents banked. They’re also the best known so there’s always been an element of trust and, of course, loyalty to the one you’ve always been with.

There is a growing feeling that this trust and loyalty hasn’t always been repaid. Some of the bigger lenders have yet to pass on the full amount of recent rate cuts. The people with loans from these banks are potentially paying more than they should be. Our Federal Treasurer is calling this a ‘loyalty tax’. Now could be the right look for a deal that suits you better.

Think small.

These days you have a lot more choice than the traditional big names in banking. In recent months the RBA’s official rate has gone from 1.5 per cent to 0.75 per cent.

One of the main benefits of smaller lenders to the mortgage market is the competition they create. Without the established market share of the bigger banks, they’re forced to be more competitive. The simplest way to win customers from the big four is to offer lower interest rates.

A bit of healthy competition is a good thing for those of us with mortgages. It gives us choice and, best of all, keeps the big banks honest – forcing them to make their products, rates and loan features more attractive. Rather than banks having all the power and setting the scene, this gives more power to the people. The banks have to fight for our business.

The benefits of smaller lenders.

Choice. All lenders, big and small, provide competitive interest rates and fees at different times and to different customers. It pays to shop around. The prospect of saving money is a pretty good reason to switch loans.

Fully featured loans. In the beginning, simply providing competitive rates and fees with no-frills products was how the alternative lenders won customers. But in the years since, competition and the maturity of the lenders now sees them offering a suite of fully featured loans with redraw facilities, offset accounts, online services and credit cards.

Fewer overheads. There are a few good reasons why the smaller lenders can operate by charging lower rates and fees. Because of their size they have fewer people and branches to support. The online-only lenders have no network of bricks and mortar branches. And most also have much lower marketing budgets to sustain.

Different business models. Some of these lenders, like credit unions and building societies are also customer owned, meaning their focus is on providing value to their members, not paying dividends to their shareholders.

Customer focused. The Big Four have faced their challenges with maintaining a reputation for good customer service. Like rates and fees, this has always been an obvious place where the smaller lenders can take on the banks. A good way to see whose customer service is better than others is to talk to friends and family and check out customer reviews on industry rating and review websites.

A choice of loans.

It is true that each big bank might have a larger selection of loans than each individual smaller lender. If you’re searching for a new loan and compare the big banks with each other, you’ll probably see more of the same style of loans. But if you ask me to include smaller lenders in the search, your choice goes from the tens to the hundreds, making it much more likely you’ll find the most suitable loan for your individual needs and goals.

This extra choice has resulted in more Australians than ever now choosing non-major lenders for their mortgages. According to the AFG Index1 the market share of non-major banks has climbed to 46 per cent, the highest levels since the GFC more than a decade ago.

Apart from getting a good deal, customers now trust the smaller lenders more than ever. And there’s no reason not to. Big or small, they are all governed by the same rules, regulations and obligations. Again, it pays to do your research and review.

A difficult choice.

As we said before, including smaller lenders on your list of options opens you up to a choice of hundreds of loans. So how do you find the right one for you?

That’s where we come in. As mortgage brokers, we keep up to date with the market and we are in constant contact with most of the lenders. The easiest way to work out if a small lender is a good option for you is talk to us. Just give us a call and we’ll take you through all the pros and cons of the lender and their products to find the loan that’s right for you.


Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.