What type of lenders offer home loans in Australia

Just as every home loan borrower is different, so too are the home loan lenders that provide finance. There is no one-size-fits-all bank when it comes to your home loan, so let’s explore the different types of lenders you can choose from.

Whether you rely on stability with a big bank, face-to-face communication from a lender offering branches near you, or you’re looking for an innovative online lender, there are a range of different lender types in Australia.

In Australia, you need to meet specific criteria to be considered a “bank”. This means being listed as an ADI, or authorised deposit-taking institution. ADIs are authorised to accept deposits through bank accounts, savings accounts and/or term deposits, as well as lend money to customers through loans and credit. This authority is granted by the Australian Prudential Regulation Authority (APRA).

ADIs may include:

• Banks; including the big four Banks and their subsidiaries (e.g. Bankwest or Suncorp), some neobanks and some online lenders
• Credit Unions and Building Societies

Non-ADIs may include:

• Money market corporations (brokers and dealers)
• Finance companies (some online lenders, some brick-and-mortar companies)

Here are the types of lenders you’re likely to come across when comparing home loans, and their benefits and disadvantages.

Traditional banks

One of the most popular types of home loan lenders you’ll come across are traditional banks. Think of the big four banks – CommBank, Westpac, ANZ and NAB – and their subsidiaries.

These are ADIs that offer extensive financial products as well as customer support across Australia, including ATM and branch access. This can be a lifeline for customers who rely on face-to-face service for their banking needs.

Another advantage of a bank is the notion of security they may offer borrowers, as the biggest banks are perceived as being too large and too supported to fail. This means that home loan customers may believe their loan is safer with a big bank than a smaller lender if a financial crisis were to occur.

Unlike smaller lenders though, traditional banks tend to have higher overheads to cover, such as branches, compared to lenders based entirely online. This means that their average home loan interest rates and fees may be higher in some instances. There is also more red-tape to cut through if you’re hoping to see innovative fintech rolled out quickly.

Member-owned lenders

Another popular group of ADIs include member-owned lenders, such as credit unions, member-owned banks and building societies, sometimes called “mutuals”. Their main point of differentiation with banks and non-banks is that they are not owned by shareholders but are accountable to their members. Meaning, they are not listed on the Australian Securities Exchange (ASX).

Due to this, member-owned home loan lenders may be appealing for this sense of working for customers as opposed to working for profits. While every bank would advertise that they do this, member-owned lenders stand out as each customer generally has a say in operations. Customers have a share in the lender and may help to influence or vote on governance for the lender, such as selecting board members.

As a member-owned lender may be smaller or more niche than a big bank, you could find that interest rates and fees may be more competitive in some instances. Also, you may find that the lender works to service your community from its profits, particularly in regional areas where it may be the main competitor lender.

Non-banks

Non-bank lenders, or Non-ADIs, do not have an ADI licence. They will not be able to take deposits from customers through savings accounts or term deposits, but they may still provide credit products like home loans or personal loans. Through these home loans, you may find a non-bank can still offer accounts that are transactional, such as an offset account linked to a home loan.

Some borrowers may be hesitant to consider a non-bank because they may not have the same brand recognition or perception of safety and stability. This is understandable when you consider that your deposits up to $250,000 per account with an ADI are protected by the Financial Claims Scheme (FCS), meaning the government will support your funds to this amount if the lender went under.

However, generally speaking, if a non-bank were to go under, a big bank or member-owned lender is likely to purchase their home loan books and transfer your property to a mortgage with them instead.

Non-banks offer benefits to customers in the form of more competitive home loans and innovative fintech, generally speaking. As they may have fewer overheads, this means they may pass these savings on to customers in the form of lower home loan rates. You may also find a non-bank is more likely to take up modern technology faster than a big bank and provide innovation in the form of high-tech programs like faster online application times.

Compare home loans in Australia