Banks

  • $ Are authorised deposit taking institutions (ADI’s) and can use their own funds to provide home loans.
  • $ They provide integrated banking packages including savings, transaction accounts, and credit cards.
  • $ Networks of branches provide additional service but contribute significantly to overhead costs.
  • $ The ‘Big 4’ banks are generally perceived poorly by the public and have low customer service ratings compared to their competitors.

Second-tier banks

  • $ There are a surprising number of household names beyond the ‘Big 4’ including ING Direct, Macquarie Bank, Suncorp, St George, Bank of Queensland, BankWest, Adelaide Bank, Citibank and AMP.
  • $ While some are now owned by the big banks it is worth considering their competitive offerings.

Building societies and credit unions

  • $ These non-profit cooperatives are owned by the people who use their services. Each member is both a customer and a shareholder.
  • $ Rates can be very competitive.
  • $ Member deposits are used to fund loans.
  • $ Like banks, they offer a wide variety of banking facilities with a focus on customer service.
  • $ They are regulated in the same way as banks.

Non-bank lenders

  • $ They do not hold an Australian Banking Licence so cannot accept deposits. They therefore source wholesale funding via investors, financiers, trusts and even the ‘Big 4’ banks.
  • $ Mortgage Managers are part of this group but rather than sourcing wholesale funds, they arrange finance for individual loans, lend it out under their own brand and perform a customer service role for the term of the loan on behalf of the underlying lender.
  • $ They do not have the overheads of an extensive branch or ATM network.
  • $ The appeal for customers has been lower interest rates, more flexible lending criteria (e.g. for low doc or non-confirming loans) and higher loan-to-valuation ratios (LVRs).
  • $ An emphasis on customer service, faster loan processing times and responsiveness are other selling points compared to the big banks.
  • $ Low rates are however often balanced by higher fees.
  • $ Clients are sometimes concerned about the financial security of these lenders, particularly with the potential of another global credit squeeze. Non-bank lenders may be less able to access funds and therefore more likely to pass on higher costs via interest rate rises.
  • $ They tend to have limited products and services so you might not be able to use them for all your financial needs.
  • One of my biggest frustrations is seeing borrowers regularly make the mistake of choosing a more expensive loan with a better-known lender.