Why a Non-Bank or Non-Conforming lender doesn’t mean higher interest rates.
We tackle the basic assumption that non-bank and non-conforming lending products typically contain higher interest rates than bank products, analyze some of the possible reasons for the existence of this assumption, and set the record straight about comparative interest rates for non-bank lenders using the Easy Settle lender marketplace.
As an inexperienced borrower, home loan rejection from the banks can feel like the final nail in the coffin of your investment plans. There are a number of steps that you can take in order to transform yourself into a better candidate for the banks, but ultimately at some point many borrowers get stuck where a traditional loan might not be a viable choice for them. This happens for many reasons, most commonly because the banks can often afford to impose strict lending requirements on their standard loan products.
The readily available option to finance through a non-bank lender may not be considered viable by many first time or seasoned investors. Recent market statistics have indicated that even after the Commonwealth Bank’s infamous rate hike, which was above and beyond the Reserve Bank’s, non-bank lenders are still responsible for only 1% of new home loan uptake.
Part of this can be fairly attributed to low consumer confidence in the wake of the global financial crisis of 2008. Even if we factor this in conservatively however, there seems to be a gaping whole in the demand for competitive home loans that could easily be filled by the non-bank lender marketplace. Consider the following basic home loan rate comparisons (as of 1 July 2011):
As you can see, the above standard interest rates from the non-bank lenders are extremely competitive when compared to those of the banks, and this doesn’t factor in the high fees charged by the banks which in most cases push the comparison rate (that is, the rate including all fees and charges) up at least 0.10%. This tends to suggest another explanation for the lack of consumer uptake in non-bank lenders.
The underlying problems causing the poor consumer uptake of private non-bank lending
It seems that the poor market uptake of non-bank loan products is largely due to consumer uncertainty pushing people towards bank products. Many customers are hesitant to get involved with a non-bank lender because of the perception that a non-conforming lender will be more of a ‘loan shark’ rather than a viable alternative to bank finance. We recognized this early on, and have adapted a system that can provide the borrower with the utmost confidence when dealing with us for standard home loan products.
All our loans are underwritten by a licenced, competent and experienced team ensuring that the lender and the borrower are a perfect match for each other. By acting as the intermediary, we take both the hard work and cost out of securing a non-bank loan. We are also able to drive competition between lenders to be more adaptive to the individual cases presented to us, this allows us to provide an even more competitive rate than the banks.
So with all these advantages in a non-bank lending model such as ours, why is home loan uptake so low for non-conforming lenders?
One answer that has been suggested as exit fees. As of July 1 2011, exit fees can no longer be placed on consumer loan products. This Federal Government decision was initially designed to promote competition by removing barriers to refinancing if a customer has become dissatisfied with their existing bank loan. This move has been criticized by a number of non-bank lenders including Aussie founder John Symond. The actual effect of the ban won’t become clear until later in the year, but at the very least, the controversy surrounding the issue should push consumers to take a second look at their mortgage.
Private lending perfected with Easy Settle Finance
If you’re considering your options for a first home loan, or just fed up with the service or extra fees charged by the banks, then you could benefit from talking to one of our team members about your financial situation. Enquire today and discover the Easy Settle difference!