5 ways non-banks are changing the lending market


In recent years, non-bank lenders have evolved to provide a more sophisticated, specialist level of service for more borrowers. And as their market share grows, they are able to solve more problems with new products – including simpler access to long-term property finance.

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According to PEXA’s annual Property and Mortgage Insights report, non-bank lenders dominated Australia’s lending market through most of 2021 – largely as processing times with major banks lagged given the incredible 57% growth in nationwide property settlements.

Non-banks currently have a 10% share of Australia’s commercial real estate lending market, and AUSTRAC expects this to grow by almost 10% a year through to 2024. Alternative lending is already a mainstream choice in Europe and the US, and Australian borrowers are increasingly comfortable seeking alternatives source of capital.

Especially if a non-bank lender offers greater flexibility, and a better long-term outcome for the deal. “My business has doubled in the last two years, and non-bank lenders like Assetline Capital make it easier for me to meet that growth demand,” says Jim Ghezelbash, founder of Bondi Mortgages.

Traditional bank lending is bound by regulatory-driven credit policies, and as a result their products are effectively commoditised. Non-bank lending for business purposes is priced according to risk, and to assess that risk non-banks look at a range of factors – including the underlying strategy and asset valuation. 

Assetline Capital is now able to extend its market-leading turnaround to a product more commonly associated with the major banks: long-term mortgages. And if that has you re-thinking all your assumptions about non-bank lending, here’s five reasons a non-bank could be the right solution for more scenarios.

1. Australian borrowers are looking for an alternative to the major banks 

Trust in Australia’s big four banks dropped to a two-year low in 2021 – with older borrowers the least likely to put their faith in major banks.

“Non-banks can think outside the box: they’re not bound by the same requirements or shareholder obligations,” says Paul Cleary, Director of Victoria-based Synergy Commercial Property Finance. “We had one client who’d been loyal to his big four bank for 20 years. But they’d kept him on a relatively high rate. When he decided to refinance to release more equity, a non-bank lender was able to offer him a better loan structure – at a lower interest rate.”

Access to alternative lending used to depend more on who you knew. But today, non-bank lenders can provide specialist solutions, along with direct access to decision-makers and a high level of service. “They may not have visible high street branches, but they have the experience and the capital to get the deal done,” says Paul. 

2. More Australians fit the non-bank borrower profile than you might think

Non-bank lending suits more than just complex opportunities or non-conforming borrowers. If you’re self-employed or run a business, it can be challenging to meet the bank’s serviceability requirements – especially if your business growth trajectory took a hit during COVID, or you have more complex underlying business structures.

Non-banks can take a more commercial view. And that means we can say yes to more borrowers, from simple bridging loans to longer term 30 year mortgages. Those who might not meet the bank’s stringent requirements, but still have the right assets, capabilities and strategy to succeed. 

For example, when a couple with a prime block of land in Melbourne saw an opportunity to subdivide, buy their dream home, and retain their previous residence as an investment property, they needed to move quickly. They had just five days between settlement deadlines – and their property portfolio is held in a complex company structure for asset protection.

This is not an uncommon scenario for experienced property investors, but it is challenging for a mainstream lender to carry out a full valuation and assess serviceability in that timeframe – especially on an alt-doc basis. Fortunately, their broker turned to Assetline Capital – and we were able to fund the settlement on time with a 30 year Horizon Mortgage.

3. Non-bank lenders specialise in areas banks can’t match 

Non-banks are specialist capital providers in areas where banks simply don’t have the expertise. For example, Assetline Capital has an in-house valuation, quantity surveying and project management team. This is the secret to our market-leading settlement turnaround. It also means we understand the risks of financing a project before an occupation certificate is complete, or for more complex multi-property portfolio structures.

If a broker only worked with banks these days, they wouldn’t have a business. You need access to different types of capital in this market to meet your client’s changing lending needs.”

Paul Cleary, Synergy Commercial Property Finance

4. Not all non-bank lenders are the same

There are plenty of alternative lenders entering the market, but they don’t always have the capability or experience to deliver on their promises. Make sure you choose the right partner, by asking these important questions upfront: 

  • How many years have you been lending?
  • What experience do you have in deals like this?
  • Do you have the funds available to fund the deal or will you need to raise this capital first?

Check the fine print too – what are the exit or early repayment fees? 
For construction loans, is that lower interest rate being charged on the outstanding balance only, or the full loan amount?

See why this developer sought a more sophisticated capital partner for his luxury residences in Woollahra.

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5. Non-banks offer value beyond price 

Non-bank lenders may be able to accept a higher LVR, accept alternative sources of income or offer construction funding without pre-sales. But they need to mitigate that risk with certain conditions – which could mean a slightly higher interest rate.

However, while flexibility and speed often come at a premium, a more competitive lending market means that margin is shrinking. And when you weigh up the opportunity cost, the numbers stack up quickly.

For example, banks will usually require pre-sales to finance construction – but in a high-growth market that may mean giving buyers a discount. 

“It’s not uncommon for a pre-construction valuation to come in considerably lower than post-completion. For example, a pre-sale valuation could come in at $1.5 million per apartment,” explains Jim. “But if the developer can sell after completion, just one year later, he might get $2.5 million.” That $1 million ‘bonus’ more than covers a few extra basis points on the interest rate. And when you factor in the extra sales and marketing costs of selling off-the-plan, it makes even more financial sense.

Ultimately, you need to weigh up the cost / benefit trade off. If your deposit is at risk and you need a bridging loan or long-term mortgage quickly, or if you want to maximise your profits on a construction loan, a non-bank lender might be better positioned to give you the outcome you need. Just make sure they have the experience and capabilities to deliver on their promise – and can give you certainty at every step of the way.

If you’d like an alternative view on your finance, please get in touch.