Typically people think of a Non-Bank lender or second-tier lender for those that have a bad credit history or those who are self-employed and not able to verify their income.
But as the major banks are still a bit sheepish when it comes to those borderline applications, Non-Banks are stepping in to fill the void.
Non-Bank lenders can offer finance solutions that aren’t limited by the narrowly defined and often inflexible lending criteria at major banks.
An example of this could be that you’ve tried to refinance your current mortgage and get a top up at the same time only to find that you don't meet the debt servicing criteria you once did when you first took out the mortgage.
Another hurdle when trying to get a home loan from a mainstream bank is a part of the process going on in the background called the “stress-test”.
A stress-test is when a bank assesses whether you can afford to continue to make mortgage payments at a higher interest rate.
This helps them to get an idea of what could happen in the future should the interest rate increase and to make sure you can still make the repayments without facing any hardship.
These stress-test rates are sitting around 8.50% - 8.75% depending on the lender, which means you have to be able to prove you can service the mortgage at this level.
So if a mainstream bank has said “NO” to that refinance, top up or new property purchase, maybe you should start to look outside the box a little.
What are Non-Bank Lenders?
While the major banks have similar lending policies and target similar customers, the Non-Bank lenders tend to have their own particular target customer. Some specialise in customers with credit impairments, others specialise in helping small to medium size developers. Some provide mortgages to major towns only, where others provide more favourable lending to investors.
But aren’t they more expensive than a mainstream bank I hear you ask?
It all depends on your situation and what you are trying to achieve. Yes, the fees and rates are higher as it is all “risk based” lending, meaning the riskier you or your scenario is, the greater the interest rate and associated fees will be for that lender to take you on.
Remember a Non-Bank option is not your forever option.
They are there to help you through the “right now”, with the ultimate goal to get you back to the mainstream bank in the short to medium term.
How to Choose the Right Non-Bank Lender for You
If the fees and interest rates are quite high, it might be because they are offering solutions for really complex deals.
As mentioned above, they all have specific target markets and some will be a lot more expensive to deal with than others depending on the risk they are willing to take on a new borrower.
By having a Mortgage Adviser on your side you can quite quickly navigate the world of Non-Bank lenders that are going to be best suited to your own personal situation.
The Future of Non-Bank Lending
Non-Bank lending is likely to continue to grow in popularity over the coming years. As technology continues to advance and traditional banks continue to come under tighter lending restrictions, Non-Bank lenders will be able to offer even faster and more convenient loans to consumers and will become an even more viable source of financing for individuals and businesses. However, it is important for borrowers to carefully consider the risks and benefits of Non-Bank lending and to choose reputable lenders.
That's where your Mortgage Adviser comes in. Here at Kris Pedersen Mortgages we have access to many different Non-Bank lenders, so you can be rest assured that you are choosing a lender that is fit for your purpose.
As always, feel free to reach out to see if a Non-Bank lender is the best option for you.