HOME > BLOG > Home Loan Advice > Benefits of Moving Away from the Big 4 Banks

The number of borrowers choosing to move away from the Big 4 and take out a home loan with a non-bank lender is continuing to grow.

The number of borrowers choosing to move away from the Big 4 and take out a home loan with a non-bank lender is continuing to grow.

People are becoming savvier with their money and realising that paying less in interest is a smart move. According to data from research agency Sweeney, one in three Australians have chosen to switch financial institutions in the last six months.

Looking back, competition within the mortgage industry has come a long way since the height of the Global Financial Crisis (GFC). The GFC generated a lot of fear about what could potentially happen locally and consequently, this saw a shift away from smaller lenders and a migration towards the big banks which were perceived as a safer option.

However since the GFC, non-banks have continued to demonstrate their value, promoting positive competition within the Australian home loan market. The most recent ABS housing figures (October 2013, seasonally adjusted) show that the number of owner occupied mortgages sold by non-banks increased by 2.3 per cent whilst bank commitments only rose 0.9 per cent.

With the rising cost of living and other financial pressures, borrowers are looking for lending alternatives to help reduce their outgoings each month. Non-banks are clearly offering a genuine alternative to the Big 4 and that is giving money and power back to the borrower. The more that borrowers support non-bank lenders, the more everyone can save as healthy competition helps drives interest rates down.

According to the Australian Mortgage Snapshot Study 2013, 83 per cent of Australians choose their home loan provider based on interest rates. As many smaller lenders are not burdened with the expensive costs faced by large corporations, they can pass these savings onto their borrowers in the form of lower interest rates. The average standard variable interest rate for the Big 4 banks is currently 5.91% (6.03% comparison rate). This average rate is over 1% higher than similar products offered at 80% LVR by some smaller lenders such as Australia’s Non-Bank, State Custodians.

Unlike the Big 4, online non-bank lenders typically don’t offer their products via mortgage brokers and instead deal directly with the borrower. This allows them to cut out the layer of costs associated with paying expensive mortgage broker commissions and again, passing these savings onto the borrower in the form of cheaper interest rates. Whilst many people will still prefer to use the services of a mortgage broker, it’s important to know that a mortgage broker is usually only able to recommend lenders on their panel, with arrangements setup with these lenders to be paid a commission for it. Doing your own research and taking control of the process yourself, can uncover loans that are outside of brokers’ panels which could potentially save you thousands in interest.

Home loan features are often the hidden gem of a home loan product as borrowers don’t always regard them as highly as interest rates; however they have the capability of saving borrowers thousands of dollars over the life of their home loan.

There are a number of features that borrowers should consider when comparing home loans. Free redraw or offset accounts are two money-saving features that many lenders are now offering free of charge. An offset is a separate transaction account that is linked to the loan and allows your spare cash to reduce the interest payable on your loan. Redraw has a similar purpose as borrowers can add funds directly into their loan account and this reduces the interest payable while still ensuring access to the funds remains available. These loan features are not exclusive to the Big 4 and are often provided as free standard features by many non-bank lenders who also offer competitive interest rates.

Thinking of refinancing your home loan? Why not save money and support healthy long-term competition at the same time?