Small Lenders vs The Big Banks
You are about to apply for a home loan for your first time and you are not sure who to go for….your parents tell you to go with a big bank for safety reasons while a friend say’s the big banks charge to much, you should go with a smaller bank. What do you do?
The big four banks account for a significant proportion of the Australian mortgage market, however, that doesn’t mean they are the only lenders who will lend you funds for your first home. Depending on the source of data you look at, the market share of the major banks (and their subsidiaries) currently stands between 70-75%. This figure has declined over the last few years as more borrowers look to save money on their home loan repayments.
In this blog, we take a look at the things most important to a borrower and analyse how small lenders compare to the big four banks in these areas.
As always, the information in this blog is general in nature and should not be relied upon. First Home Buyers Australia recommends you should speak to a qualified Mortgage Broker when obtaining your first home loan. A Mortgage Broker is a home loan expert who considers your circumstances and assists you compare different loan options from a panel of lenders.
Interest Rates & Loan Fees
Smaller Lenders – often offer better rates and fewer fees because of the reduced costs of running their business (due to fewer branches, less marketing expenses and employee expenses). Reduced layers of management & decision makers can also help first home buyers negotiate a better interest rate on their loan.
Big Banks – interest rates tend to be higher as they have higher overheads costs and are more tightly regulated by APRA.
Smaller Lenders – generally offer a more personalised customer experience as they have fewer customers to handle. However not all smaller lenders offer a branch network which may be of inconvenience to some first home buyers.
Big Banks – unless you are a high net worth individual or do your business banking with a big bank, the big bank’s service may not be as personalised as a smaller lender. The advantage of a big bank is that they offer the convenience of a branch network and have more resources & staff members to help you with your banking needs.
Smaller Lenders – due to a lack of staff & resources some smaller lenders may not be able to offer a fast approval for your first home loan. This can vary greatly from one small lender to another.
Big Banks – as the big banks have a significant amount of resources, strong processes and teams dedicated assessing loans quickly (sometimes in a week!), the big banks may be more likely to give you a fast home loan approval.
Smaller Lenders – can be more vulnerable to a negative change in economic conditions. However, smaller Australian lenders are regulated to a certain extent to ensure they are in a position to lend money.
Big Banks – have an extra level of regulation under the Australian Prudential Regulatory Authority (APRA) who ensure that the lenders and their customers are kept safe. This may offer some first home buyers greater security when choosing which lender to go with.
Smaller Lenders – can offer great flexibility advantages as most smaller lenders have less stringent lending criteria, providing a good option if your credit rating is on the low side. Smaller lenders are also more likely to offer loans with a minimum deposit of 5%.
Big Banks – due to the extra regulation and management hierarchy, the big banks will typically show reluctance when asked to use their discretion on various matters or loan applications that differ from ‘the norm’.
No Right or Wrong
Overall, there is no right or wrong when it comes to choosing between a big bank versus a smaller lender. It comes down to your circumstances and priorities that will dictate which loan you proceed with.
Are you looking to compare small lenders vs big banks for your first home loan? Perhaps you just want to know your borrowing capacity? Complete the form below to speak with an FHBA Mortgage Broker.
FHBA – Co Founder & Qualified Mortgage Broker