Are you struggling to decide whether you want to go to a big bank or a small lender to get your mortgage? We’d totally get why you’d think about just going to a big bank. There’s familiarity and some level of reliability that you might not be sure you’re getting with a small lender.
That said, this process is more about finding someone who’s going to match your priorities – that could be:
- Getting a quality deal on interest rates
- Face-to-face service at a local branch
- Accessing more flexible lending criteria if your situation isn’t straightforward.
Fortunately, both the traditional giants and fairly new small lenders have their place in the home loan market, so you’ve got good options either way. Here’s how to weigh them up and decide what works best for you:
An Overview of Australian Mortgage Lenders
Australia’s financial system relies on a mix of some of the major players you’ve undoubtedly heard of and a few smaller outfits. The “big four” banks dominate this scene, which includes:
- Commonwealth Bank
- ANZ
- Westpac
- NAB
These banks are overseen by the Australian Prudential Regulation Authority, and they hold the lion’s share of mortgages. As you might expect, they each have huge branch networks and polished digital platforms that are easy to use.
On the other hand, many non bank lenders tend to solely be home loan providers, whether they operate solely online or through a handful of branches. So not including personal loans. And then alongside them sit credit unions, building societies and challenger banks.
These smaller financial institutions want to compete against those big banks generally speaking, and they do this through sharp rates and personal service as they hope to chip away at the big banks’ market share.
Why Borrowers Flock to Big Banks
Familiarity and Trust
As mentioned before, walking into a branch of a big bank brings instant recognition. You know the logo and the staff in branded uniforms. For a lot of people, that translates into peace of mind when dealing with substantial financial products like a mortgage. Crucially, you can rely on them.
Breadth of Services
Major banks often offer a full wheel of banking services that can be bundled with your loan (unlike with non bank loans), such as:
- Everyday bank accounts
- Offset accounts
- Credit cards
- Insurance
One login and one relationship can feel convenient if you prefer everything under one roof.
Regulatory Oversight and Stability
Under APRA’s watch, big banks must maintain strong capital buffers and strict lending practices in order to safeguard financial stability. That rigorous supervision is naturally going to reassure you as a customer that your lender is solid – even when markets wobble.
The Rise of Small Lenders
Competitive Interest Rates and Fees
Smaller lenders generally operate without massive branch networks, and they can pass on savings in the form of competitive interest rates. They often advertise lower ongoing fees and package costs. Over a 25-year loan, shaving just 0.3% off the rate can mean thousands of dollars in savings.
Personalised Service
With fewer customers per staff member, a boutique lender or local credit union may deliver a more tailored experience. You’re more likely to deal with the same contact throughout the application and settlement process – and they can sometimes approve applications faster.
More Flexible Lending Criteria
Traditional banks stick to strict checklists:
- Stable employment history
- Substantial deposit
- Spotless credit
Smaller lenders, on the other hand, often offer more flexible lending criteria. Self-employed borrowers, those with irregular income or minor past credit hiccups might find that they’re more likely to get a loan approved with a non-bank mortgage lender.
Comparing Interest Rates and Fees
Understanding the True Cost
It’s tempting to chase the lowest advertised rate, but you also need to factor in interest rates and fees, such as:
- Application fees
- Ongoing account fees
- Early repayment penalties
- Redraw charges
- General home buying costs
These can erode the benefit of a low headline rate, so you always want to compare the total cost over time.
Fixed vs Variable Options
Both big banks and small lenders provide a mix of fixed and variable rate options. Fixed-rate deals lock in your repayments for a set term, which offers some certainty if you prefer a stable budget. Variable rates, on the other hand, can adjust, giving you flexibility to make extra repayments or tap into an offset account linked to your home loan.
Loan Features That Matter
Offset and Redraw Facilities
An offset account effectively uses your savings to reduce interest on your home loan. Some big banks bundle this into premium packages, often with higher annual fees. Smaller lenders may offer standalone offset facilities without tying you to a broader banking relationship.
Refinancing and Switching
The general state of mortgage lenders changes quite quickly. Refinancing can be a powerful tool to capitalise on shifting interest rates. Smaller lenders sometimes run promotional offers exclusively for switchers, where they waive certain fees or offer cashback. Before you refinance, double-check any exit or application fees to ensure the switch genuinely saves you money.
Safety, Regulation, and Deposit Guarantees
Authorised Deposit-taking Institutions
Banks, credit unions and building societies are all grouped as ADIs. They all meet rigorous capital and liquidity requirements under the supervision of the Australian Prudential Regulation Authority (including an Australian credit licence).
Government Deposit Guarantee
The federal government guarantees customer deposits up to $250,000 per person per ADI. This is a safety net that covers savings accounts but not mortgages – though as a borrower, your repayment obligations don’t just vanish if a small lender fails. Instead, your loan is typically sold to another institution, meaning you continue to repay under the same terms.
Tech and Transparency
Online Tools and Comparison Platforms
Nowadays, it’s fairly common for both big banks and smaller lenders to provide nice online portals where you can check your borrowing power in minutes. Some platforms even integrate third-party data, which lets you pre-fill forms with details from your savings accounts or credit files.
Open Banking and Data Sharing
Under new regulations, consumers can authorise banks to share data with authorised third parties, including non-bank lenders. This means you could submit your transaction history directly to a smaller lender, which would massively speed up the assessment process and reduce all the issues you might face when it comes to documentation.
Finding the Right Balance
Your Personal Priorities
- If you crave one-stop banking, branch access and a full suite of financial products, a big bank might suit you best.
- Exploring smaller mortgage lenders can pay off if you’re hunting for the lowest possible interest rates and more of a personal touch.
Shopping Around Matters
Even if you lean toward a big bank, get a quote from a non-bank lender. Many customers report saving money and enjoying more responsive service by simply comparing offers side by side.
How Upscore Can Help
No matter which lender you choose, having your finances sorted makes the process smoother. Upscore’s Finance Passport gathers your verified financial details – income, expenses, assets and liabilities – into one secure profile. And it’s completely free!
