Perfect storm brewing for Aussie lenders

There is a perfect storm brewing in Australia, the results of which mean more and more borrowers are turning away – or being forced away – from traditional lenders.

There is a perfect storm brewing in Australia, the results of which mean more and more borrowers are turning away – or being forced away – from traditional lenders.

Rising interest rates, a spiralling cost of living crisis and a tightening in lending criteria across many of the major banks has meant that more and more Australians are getting creative when it comes to financing their lives and businesses.

“Borrowers are seeking greater flexibility beyond what banks typically can offer; and non-bank lenders are stepping in to fill the gap,” Mario Rehayem, CEO of non-bank lender Pepper Money says.

“As a non-bank, we offer more flexibility and a willingness to accommodate a wider range of borrower circumstances; such as the self-employed or borrowers with less-than-perfect credit histories.

There are a growing number of non-banks operating in Australia, and this segment is growing an estimated 4.3 per cent a year between 2017-2022.

“This trend underscores a shifting landscape in the Australian finance industry, where changing borrower needs, competition and innovation are driving greater accessibility for the growing number of borrowers that need options from a lender with a real-life approach,” Mr Rehayem says.

Mr Rehayem says that the rapid changes in the market at the moment, as well as heightened uncertainty, mean there’s never been a better time to broaden your options as a borrower.

“Obviously, everyone’s situation is different so it’s good to know there are often a range of

alternative, flexible finance options to explore beyond the banks,” says Mr Rehayem.

CEO of Pepper Money Mario Rehayem. Picture: Supplied

What is a non-bank lender?

The ‘Big 4’ banks in Australia (Commonwealth Bank, Westpac, ANZ and NAB) are so-called because they represent the majority of banking customers in the country, with around 80 per cent of Australians having a mortgage through one of the heavy hitters.

Other major banks represent a sizeable portion of the market too, with building societies, credit unions and other non-bank lenders comprising a growing group of smaller financiers.

Typically, these smaller lenders have less market saturation and smaller advertising budgets, which means in terms of appealing to customers, they have had to become more creative. This has led to traditionally attractive interest rates, often more personalised service and statistically high customer retention.

Why are Aussies branching out from traditional lenders?

While according to 2021 research by Roy Morgan, consumer satisfaction in the Big 4 has actually increased since the pandemic, the satisfaction rating still falls far below many non-bank lenders. While there are many factors at play, the general consensus is that smaller lenders can offer more flexibility for their clients, as well as more personalised service – something the Big 4 may not be able to do as deftly.

Rehayem believes the ability of non-bank lenders like Pepper to be more flexible and creative with their solutions is one of the reasons they are attractive to borrowers.

“It’s worthwhile seeking out a range of options before taking ‘no’ for an answer or jumping at the first ‘yes’ you are offered,” he explains.

“These options include features such as a broader range of acceptable income types, higher loan amounts, longer loan terms, debt consolidation or consideration of previous credit challenges.”

Banks not the end of the line

For borrowers who might have an unusual set of circumstances, or perhaps have less on-paper credentials to fall back on, Rehaymen says this is where a non-bank lender can really help, warning that restrictive conditions have become something of a hallmark of the major banks.

“Some banks and many online lenders often advertise interest rates and offers to attract

borrowers, but the eligibility criteria to secure these rates are typically restrictive with conditions that not every borrower can meet. The home loan approval process for these offers often favouring customers with a perfect credit rating and traditional PAYG employment,” he says.

“You may have experienced this before; like many other home loan applicants that have seen an attractive rate on offer only to be turned down by the bank or online lender. But before taking no as the answer, be proactive at seeking out your options with a non-bank lender like Pepper Money who takes a wider view on an individual’s circumstances and borrowing capacity.”