Should you choose a home loan from a bank, a credit union, a building society or a non-bank lender?
Banks, building societies, credit unions and non-bank lenders – they all offer home loans, but do you know what the difference is between these types of financial institutions? It’s important to understand a lender’s approach to mortgages before you can work out whether it offers the right home loan for you, so let’s take a closer look at what each type of lender offers to home loan borrowers.
Banks, particularly the “Big Four” (CommBank, Westpac, ANZ and NAB), are the major players in the Australian home loan market. In fact, around 50% of Australian mortgages are held with either CommBank or Westpac.
The vast majority of Australian banks are well-established financial institutions that offer a wide range of financial products, including everything from credit cards and transaction accounts to home loans. One of the main advantages of borrowing from a bank is ease of access, as it allows you to bundle a range of financial products together with the one institution. There’s also an added sense of security, as banks must abide by the Consumer Credit Code and are also regulated by the Australian Prudential Regulatory Authority (APRA).
However, you may be able to find better interest rates and lower fees elsewhere. You might not receive the same level of personalised customer service from a bank as you would from another lender.
Building societies and credit unions
Although building societies and credit unions are different to banks, they’re not classified as “non-bank lenders”. This is because, like banks, they are Authorised Deposit-taking Institutions (ADIs), and are regulated by APRA.
Unlike publicly-listed banks, which are run to generate profits for shareholders, building societies and credit unions are run for the benefit of their members. Rather than passing on profits to shareholders, building societies and credit unions aim to pass profits on to members in the form of better interest rates, lower fees and improved banking products.
Based on a mutual ownership or customer ownership structure, building societies and credit unions require you to become a member (usually for a nominal fee) when you take out a home loan. They generally offer a similarly broad range of home loans to the major banks, and they can often also provide lower interest rates, reduced fees and more personalised customer service than larger lenders.
A non-bank lender is a lender that does not hold a banking licence. In other words, a non-bank lender offers home loans to consumers but it is not a bank, building society or credit union.
Non-bank lenders are privately owned financial institutions, which means they can generally offer competitive interest rates and fees when compared to the big banks. They have to abide by the Consumer Credit Code and their actions are overseen by the Australian Securities and Investments Commission (ASIC), so you can rest assured that it’s safe to borrow from a non-bank lender.
Non-bank lenders tend to have less strict lending criteria than major banks. They may also offer niche-market loans or mortgages that can be tailored to meet your specific requirements.
Which lender is right for me?
The right lender and home loan for you really depends on your personal situation. You’ll need to consider your financial circumstances, borrowing requirements, desired loan features and a range of other factors so you can find a home loan that meets all your needs.