3 reasons to switch to a non-major lender: RateCity

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Limiting yourself to the big four banks is like deciding to holiday only in your home town – you might have good experiences but you’ll miss out on so, so much.

That is not to criticise ANZ, Commonwealth Bank, NAB and Westpac, which are good banks. But they represent just a fraction of the offerings in the mortgage market. 

Statistics show the big four’s dominance: they provided 82.6 percent of all the mortgages that were sold in March, the most recent month for which statistics are available.

However, there are three good reasons why you should follow the lead of the 17.4 percent and use a non-major lender. 

1. They have cheaper rates 

Imagine you wanted to borrow $500,000 to purchase a $625,000 property. According to a recent search on RateCity, non-major banks had 28 of the 30 cheapest advertised rates for owner-occupiers and 25 of the 30 cheapest rates for investors.

That’s not to say borrowers should never use the big four banks – there will definitely be occasions when one of their products is the best option. And that’s not to say borrowers should always take the lowest rate – there will definitely be occasions when a higher-rate product actually represents better value.

However, if a non-major lender has a loan that’s appropriate to the borrower’s circumstances and is also cheaper, the borrower could save tens of thousands of dollars over the life of the loan.

2. They give better service

Australians get better service from smaller lenders, according to the Roy Morgan Consumer Banking Satisfaction Report for the six months to March. The non-major banks achieved an average customer satisfaction rating of 86.1 percent, compared to 80.0 percent for the big four. The customer-owned mutual banks led the way with a rating of 91.0 percent.

There are two reasons why smaller lenders offer better service. First, they know they have no chance of beating the big boys unless they try harder. Second, they’re not massive, bureaucratic organisations, which means they can move faster and be more personalised.

3. They’re safe

Australia’s smaller banks are regulated by the Australian Prudential Regulation Authority (APRA), while non-bank lenders are regulated by the Australian Securities and Investments Commission (ASIC). Those regulators work together to safeguard Australia’s financial system and ensure lenders follow responsible lending rules. 

The other point worth mentioning is that it is the lender, not the borrower, that assumes the risk. If the hypothetical borrower mentioned above took out a $500,000 mortgage and the lender then collapsed, it would be the lender, not the borrower, that would be in trouble.

Nobody can unilaterally alter the terms of a legal mortgage contract, so the borrower’s mortgage would remain unchanged. The only difference is that the borrower would make their repayments to a different party – either a new lender (if the distressed lender found a buyer) or the liquidator (if it didn’t). So, even if the smaller lender went under, your home loan will be safe. 

Thinking of switching?

If you’re curious about refinancing with a non-major lender, RateCity has made the process easier with its Switch & Save Sale, which will help you refinance to a cheaper rate.

If you have a mortgage with ANZ, Commonwealth Bank, NAB or Westpac, you could save up to $39,000 over 15 years by refinancing during the Switch & Save Sale.

RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage from the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the Switch & Save Sale.