Last updated on 19th April 2019

Why are borrowers leaving the banks for boutique lenders?

Tighter lending standard introduced after the Royal Commission have put banks under the spotlight. This, as well as efforts by the Australian Prudential Regulation Authority (APRA) to slow growth to investment lending, have made it difficult for borrowers to get a home loan. This has made it harder for people to secure a loan with the major banks and pushed many borrowers towards a smaller or a non-bank lender.

This crackdown is in place to reduce the likelihood of customers defaulting on their loans, but it’s also made it harder for people to secure a loan with the major banks. This has pushed many towards a smaller or a non-bank lender.

These boutique (or non-major) lenders have rushed to fill the value-gap left by the big banks, and they’ve now grown to hold a 41% of the mortgage market share1. So, why are so many Aussie borrowers jumping ship for smaller lenders?

5 great benefits of using a boutique lender

When shopping for a home loan, you’ll probably notice that lenders fall into two main camps: the big four banks or non-bank and smaller lenders. The big banks have two major advantages when it comes to the home loan market – brand recognition and customer loyalty.

While boutique lenders are smaller, and they might not be a household name, they’re still subject to strict credit-lending standards. And to put up a real challenge to the big banks and take from their market share, they’re offering a huge amount of value to potential customers.

1. Better rates

With so much competition, borrowers are in a good position to shop around for a better rate, and boutique lenders are offering some of the lowest around.

It is, however, a good idea to remember that interest rates aren’t everything. You should always take fees and features into consideration when comparing home loans. A mortgage broker can help you sift through the numbers and make a clear comparison.

2. Lower fees

Borrowers often have a better chance of securing a loan with low or no ongoing fees through a boutique lender. In a bid to draw in more customers from the portfolios of the big banks, many are offering low or no-ongoing fee loans.

For example, ING offers a Mortgage Simplifier loan with no ongoing fees, and GreaterBank’s Great Rate home loan has no monthly or annual fees.

3. Different lending criteria

In the aftermath of the Royal Commission, the big four banks have tightened up their lending standards and are especially conservative when determining loan serviceability at the moment.

In the past, the big banks have been so big that they’ve been able to create inflexible loan packages and rely on brand loyalty to keep their customers and draw new ones in. Essentially, they’ve been so big that they’ve been able to dictate the terms to borrowers.

However, as the market diversifies, more borrowers are realising that they have a wide range of choice when it comes to their lender. Even if you find yourself rejected from a major bank, the right loan terms for you might just be a new lender away.

Boutique lenders also aren’t experiencing the same backlash as the major banks, and therefore haven’t tightened their standards in the same way. This is why they may be able to offer non-traditional loans like low-documentation or low-deposit loans.

4. Higher Customer Satisfaction

Research firm Roy Morgan released a study looking at customer satisfaction across banks in Australia. They found that the most satisfied home loan customers were not with a big bank but with ING.

ING customers reported a satisfaction rating of 94.8%. Compare that to a 71.4% satisfaction rating from ANZ and Commonwealth Bank, 70.7% from Westpac, and 70.3% from NAB[2]. With interest rates at competitive lows, this is a clear indicator that it’s not enough to offer low rates; customers are looking for good service as well.

5. Personalised service

Because smaller lenders are less well known, their reputation is especially important. That means that good customer service is critical, because it leads to positive word of mouth.

Smaller non-bank lenders often promote a more personalised level of service. This may be presented in a number of ways, from a fast response rate to a tailored loan package.

Choosing a Boutique Lender

So you’re ready to consider a boutique lender, but how do you find one? There’s no shortage of bank and non-bank lenders, and comparing them all is a daunting task.

A Rate Comparison broker can help you find a lender offering low rates, great features, and fair fees, comparing from a panel of over 27 lenders based on your preferences.

From there, they can assist with your application and even negotiate for favourable loan terms on your behalf. You’ll get impartial advice on what to look for and what to avoid, as well as a home loan expert in your corner.

Australians are fighting back against the high fees and stringent home loan applications from the big banks; find out how a boutique lender can help you by contacting a Rate Comparison broker today.

This article is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.