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Swathes of home owners looking to refinance their mortgages are a boon for start-up, non-bank lenders, with borrowers looking beyond the big-four banks in an effort to lock-in the lowest interest rates possible.

Non-bank, or “challenger”, lenders operate as they sound – providing borrowers with an alternative to the big-four banks, often alongside technology that provides swift approved of new loans – as quickly as 10 minutes, in some cases.

Home owners are moving away from the big-four banks in search of better deals.
Home owners are moving away from the big-four banks in search of better deals.Credit:Paul Rovere

These lenders are often backed by other large non-bank lenders or fintechs and hold their own credit licenses.

However, some lenders – while they may appear independent of the big four – are wholly owned by a major bank, such as Unloan (CBA) and UBank (NAB).

While non-bank lenders have been a presence in the mortgage market for a few years, the rising interest-rate environment has put many operators in pole position to win new customers, as they can often offer lower interest rates than many of their major competitors.

Toni Mladenova, the chief executive of non-bank lender Yard, said the company had seen a heightened number of new customers recently, labelling it a “perfect storm”.

“You have increasing interest rates, you have inflation and increasing expenses, and all this has really led to people being very engaged with their home loans,” she said.

“Where we are seeing new inquiries, in particular, is customers looking to refinance from major banks.”

Mladenova says Yard and other non-bank lenders’ digital operations also remove a lot of the barriers for people refinancing, making it much easier for people who may have been put off by the fuss of a typical refinancing.

Yard offers a variable mortgage interest rate of 3.3 per cent, compared to rates of 4.3 per cent to 5 per cent offered by the big-four banks. Other non-bank lenders feature similarly low variable rates, with one-year fixed rates also below-market average at about 5 per cent.

Derek Sheerin, the chief executive of recently launched lender OneTwo, says challenger lenders are providing real competition to the major banks, with loyalty to the big four “starting to erode”.

“There are now lenders, like OneTwo, who offer great rates, reward customer loyalty, and offer a great experience,” he says.

“The only question for customers is, with interest rates going up, why stay and pay more, when you can move and pay less? We wouldn’t do it at the petrol pump.”

“Almost all of OneTwo’s customers come from a big-four bank, and most of them are dissatisfied with their previous experience and treatment in some way.”

On a $500,000 loan, Sheerin says OneTwo’s variable rate, which is 3.09 per cent, could save home owners between $60,000 and $70,000 over the course of their loan, or about $184 a month.

And while the concept of a lender not backed by a big bank may scare some borrowers, operators still have to comply with Australian laws and consumer protections. Additionally, Mladenova says because you are only borrowing, not depositing funds, the company is the one assuming the risk.

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“We get this question a lot, and what we say is that at the end of the day, we’re the ones who are actually giving people money, so in this case the risk really lies with us,” she said.

Mladenova also notes that in the event of a non-bank lender collapsing, the loans are treated as assets that would be transferred to another lender and their terms honoured.

Non-bank lenders have been far more successful in the market than their start-up neobank peers, which relied on venture capital to fund their operations, as they largely did not offer lending products.

In the past two years, neobanks Volt, Xinja and 86400 have either collapsed or been acquired by a major bank, leaving no independent neobanks in the Australian market.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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