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Non-bank lending is growing in Australia, which in turn is helping brokers grow their businesses.
"About 10% of our clients use non-bank lenders," Shannon Weaver (pictured above left), national broker development manager at Melbourne-based Empower Wealth Advisory, told Australian Broker. "That extra 10% wouldn't be in the market without the non-bank lenders. So that's a 10% opportunity."
As the non-banking sector grows, it continues to compete with traditional banks for customers. Non-banks – or institutions not authorized to accept deposits – often have more lenient lending guidelines, enabling some borrowers who otherwise couldn't get approved at a bank, access to credit. Lead times are also typically faster. But borrowers pay the price with higher interest rates.
"Sometimes you might have to use a non-bank to help the borrower get across the finish line, with the intention of moving to a bank option down the track," said Weaver, whose firm works with residential home loans.
He added that "there's a real need and purpose for non-bank lending, especially in the current economic market with buffers and regulations. It's critical from a business and client point [of view] to have these more flexible options available." The added solutions include not only less stringent lending criteria, but also added flexibility in the types of securities or property loans borrowers have access to.
But brokers and their businesses benefit too.
Nathan Smith (pictured above centre), general manager at Miranda, New South Wales-based mortgage brokerage Birdie Wealth, said non-bank lending allows the brokerage to grow in new areas of expertise.
"We're able to have someone [work in house] who understands these niche specializations," he said.
"We'll show both options for sure," Smith said, referring to banks versus non-banks. "There are some clients who still want to use the bank because they know the bank and trust the bank."
Weaver agreed that most borrowers still prefer to go to a bank for financing.
Either way, brokers can benefit from understanding the ins and outs of all options as the use of brokers skyrockets in Australia in both residential and commercial real estate. Between January and March of this year, more than 74% of all home loans were written by mortgage brokers, according to the MFAA. Roughly 30% of commercial loans last year were written by brokers. And many expect the share of brokers will only continue to get bigger.
At Pallas Capital, a non-bank lender in the middle market commercial property space where loans typically range from $1 million to $15 million, about 75% of the firm's deal flow comes through the third-party channel, such as brokers and advisors, according to Jason Arnold, group executive of origination at Pallas.
"Now, more of our clients, corporate clients and individual clients, are seeking advisors and brokers for commercial transactions," Arnold said. And he anticipates this is just the beginning, as both the non-banking and broker sectors continue to gain traction.
"As the brokers increase their exposure to the commercial finance market, that automatically helps us increase our volumes. That's a big area of growth," Arnold said. "And there are more home-loan brokers who are trying to diversify their business and getting into commercial finance to open up more clients to their business and give them a different revenue source, instead of just doing home loan after home loan."
On the home loan side, the use of brokers is even more pronounced, as loans become increasingly complicated and borrowers turn to brokers for guidance. Barry Saoud (pictured above right), general manager, mortgage and commercial lending at non-bank lender Pepper Money, said approximately 96% of the firm's deal flow goes through brokers.
"What we are seeing is a change in Australia in that traditional borrower," Saoud said. "We are seeing borrowers are becoming more complex in their financial situation; we are seeing the rise of the gig economy. We are seeing borrowers who have multiple different jobs they're doing to compensate, or sort of drive their income. So, brokers and customers are seeking flexibility.
"And what we are seeing is a shift in brokers," Saoud said. "The brokers in Australia are becoming bigger and busier, and what they are doing is diversifying. So, traditionally a particular broker would only specialize in offering mortgages. But what we are seeing with the more professionalization of brokers is growing into diverse financing, not only offering mortgages, but commercial lending, asset finance, personal loans. So, all of that is contributing to that sort of openness to use non-banks."
