More Australians are turning to small and mid-tier banks to refinance their home loans amid tough competition and record low interest rates, data from the country's biggest mortgage broker shows.
Australian Finance Group (AFG) data shows a shift in the market away from the big banks towards small, mid-tier and non-bank lenders as customers continue to rely more heavily on brokers to seek out competitive rates.
![The Australian Securities and Investments Commission is finalising a report into the impact of commissions on ...](/web/20170126144759im_/http://www.brisbanetimes.com.au/content/dam/images/g/h/7/5/t/g/image.related.articleLeadwide.620x349.gtxp7o.png/1485409301715.jpg)
It comes amid a continuing boom in refinancing, greater competition in the sector and a crackdown on investor lending by the banking regulator.
Loans to non-major banks accounted for 34 per cent of those written by AFG brokers in the most recent quarter of the financial year, compared with 22 per cent of loans in the same period in 2013.
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Major banks are defined by AFG as the big four and their counterparts, such as St George and Bank of Melbourne. Non-majors include AMP and Suncorp as well as customer-owned banks and non-bank lenders.
The biggest pull away from the major banks was in refinancing, the data shows – 41 per cent of customers refinanced with a non-major bank in 2017 compared with 26 per cent in 2013.
Refinancing is when customers take out a new loan to pay off their existing mortgage.
AFG said there had been a spike in lending to non-majors, as the big banks increased their fixed and variable interest rates and tightened lending to investors amid a crackdown by the Australian Prudential Regulation Authority.
This was leading customers to seek out more competitive rates through their brokers, the company said.
"You can see there is a lot more competition in the market than there was 18 months ago," Mark Hewitt, AFG's general manager of sales and operations, said. "We're seeing the non-majors pick up some of the slack."
Peter White, executive director of the Finance Brokers Association of Australia, said more Australians were also turning to non-bank lenders for finance, and companies such as Pepper Group, Liberty Financial and La Trobe Mortgage Corporation were taking a bigger chunk of the market.
"The non-bank sector is a lot more agile and of course isn't directly controlled by APRA because they are not banks," Mr White said. "They have a greater degree of flexibility to take on risk."
Pepper has previously said the banking crackdown would provide an "opportunity" for the company, because it was not regulated by APRA.
Rachel, a 26-year-old home owner from Camden, New South Wales, who preferred not to use her full name for business reasons, said she had recently refinanced a land and construction loan with Bank Australia, ending a four-year relationship with Commonwealth Bank.
She said she moved to the customer-owned bank on the recommendation of her broker.
"I had never even heard of Bank Australia," she said. "We would have done our own research for another bank, but we were guided by [the broker's] advice."
APRA said this month that the banks had "appreciably improved" their residential lending standards over the past 18 months as a result of its crackdown.
The Australian Securities and Investments Commission is finalising a report into the impact of commissions on broker-sourced lending, commissioned by Minister for Financial Services Kelly O'Dwyer.
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