Comparing banks and non-bank lenders for home loans

In the market for a home loan? You might be weighing up whether to go with a bank or a non-bank lender. But what’s the difference and why does it matter?ON THIS PAGE

If you’re hunting a home loan, chances are you’re comparing offers from banks and non-banks alike. You may have also noticed those promised by non-bank lenders can be more competitive than those advertised by banks – this is often the case. 

Non-bank lenders are just that: Financial institutions that provide loans but aren’t banks. But what does that mean and how are they different from traditional banks? Let’s get into it.

What is a non-bank lender and how do they differ from banks?

At their most basic level, banks do two things: They provide loans and store customers’ deposits. Their profits are generally the difference between the interest they charge on loans and the interest they pay on deposits. Banks also tend to operate out of branches and provide in-person services to customers.

Comparatively, non-bank lenders don’t hold deposits. To make their money, they tend to undergo what’s called securitisation (explained below). Fewer non-banks tend to operate branches as do banks and non-bank borrowers generally manage their loans online or over the phone.

For those reasons, non-banks generally have fewer expenses than banks and many pass their savings onto customers in the form of lower rates and more competitive home loan features.

What is securitisation?

It sounds complicated – and it can be if you get into the weeds of it. But at a headline level, securitisation means to bundle multiple assets (in the case of non-bank lenders, these assets are typically customers’ loans) and sell them to investors. The investors then receive a portion of the interest borrowers pay.

Did you know? Banks are known as Authorised Deposit-taking Institutions (ADIs) – meaning they can accept customer deposits and are regulated by the Australian Prudential Regulation Authority (APRA).

Non-bank lenders, on the other hand, aren’t overseen by APRA because they don’t hold deposits. Instead, they’re regulated by the Australian Securities and Investments Commission (ASIC), which enforces consumer protection laws and responsible lending obligations.

So, while banks and non-banks operate under different frameworks, both must lend responsibly and are held to account by Australian regulators.

Who might benefit from a non-bank lender over a bank?

Non-bank lenders come with plenty of advantages – but so do traditional banks. The right fit will depend on your personal preferences, financial situation, and how you like to manage your money.

For instance, you might prefer to keep all your financial products under one roof. In that case, a bank could be the better choice, offering savings accounts, credit cards, and a mortgage in one place.

On the other hand, if you have a patchy credit history or irregular income, a non-bank lender may be more flexible. While both banks and non-banks are regulated, banks must follow stricter lending rules – particularly when assessing a borrower’s ability to repay. Many non-banks also specialise in non-standard lending, such as low-doc or specialist home loans, and can take a more personalised approach.

Other factors you might want to consider when choosing between a bank and a non-bank lender include:

Consideration	A bank might suit you if…	A non-bank might suit you if…
Online vs in-person service	You want face-to-face service and like to visit a branch when needed.	You’re comfortable managing your loan online or over the phone.
Rates and fees	You prefer bundled deals or discounts for having multiple accounts with a bank.	You want the lowest rate possible and/or to avoid common home loan fees.
Credit score	You have a decent credit history and meet standard bank lending criteria.	You have a low credit score or irregular income and want a more flexible assessment.
Home loan needs	You value offset accounts (these are a type of deposit product).	You’re looking for a non-standard loan type or a more personalised mortgage structure (e.g. low-doc, alt doc).
Application process	You don’t mind waiting a bit longer for approval if it means dealing with a major lender.	You want a faster, more streamlined online application process.
Loan features	You need multiple offsets or linked banking tools.	You value a low rate over potential extras.
Brand trust	You feel more confident borrowing from a banking institution.	You’re open to using a regulated lender that doesn’t offer deposit accounts.

Whether you’re considering a home loan from a bank or a non-bank lender, it’s important to compare rates, fees, features, and eligibility requirements before applying. Your ideal home loan will depend on your individual circumstances – and the right lender can make all the difference.

Need further guidance on finding the right home loan lender? Check out our resource for homebuyers and refinancers

Australia’s prominent non-bank lenders

You might have come across non-bank lenders without even realising it. Some prominent non-bank lenders include:

Non-bank lender	Info
Unloan	Owned by CommBank; offers low ongoing rates with automatic rate drops.
loans.com.au	Online lender with sharp rates, fast approvals, and specialty home loan options.
Tiimely Home	Formerly Tic:Toc; known for tech-powered fast approvals and a digital-only process.
Athena	Offers automatic rate matching, so existing borrowers never pay more than new ones.
Pepper Money	Specialises in flexible loans for self-employed or credit-impaired borrowers.
Reduce Home Loans	No-frills lender offering some of the lowest advertised rates in the market.
Liberty Financial	Offers a wide range of specialist loans, including low-doc and SMSF options.

Low-rate mortgage deals from non-bank lenders

In the market for your first or next home loan? These deals from non-bank lenders might catch your attention:

Lender	Interest Rate	Comparison Rate*
		5.29% p.a.	5.33% p.a.	Owner OccupierVariablePrincipal & Interest10% Min DepositRedrawExtra Repayments	Available for purchase or refinance, min 10% deposit needed to qualify.No application, ongoing monthly or annual fees.Dedicated loan specialist throughout the loan application.	More details	Compare	Promoted	Disclosure
		5.24% p.a.	5.15% p.a.	Built and funded by CommBankOwner OccupierVariablePrincipal & Interest20% Min DepositRedraw	A low-rate variable home loan from a 100% online lender.Backed by the Commonwealth Bank.	More details	Compare	Disclosure
		5.49% p.a.	5.49% p.a.	Owner OccupierVariablePrincipal & Interest50% Min DepositRedrawExtra Repayments		More details	Compare
		5.29% p.a.	5.30% p.a.	Owner OccupierVariablePrincipal & Interest10% Min DepositRedraw		More details	Compare
		5.64% p.a.	5.64% p.a.	Owner OccupierVariablePrincipal & Interest40% Min DepositRedrawExtra Repayments		More details	Compare
		6.49% p.a.	6.67% p.a.	Owner OccupierVariablePrincipal & Interest30% Min DepositOffsetRedraw		More details	Compare

Advertisement

Variable Home Loan P&I <90%Product Features

• Available for purchase or refinance, min 10% deposit needed to qualify.
• No application, ongoing monthly or annual fees.
• Dedicated loan specialist throughout the loan application.

Monthly repayments:$2,7735.29%Advertised Rate (p.a.)5.33%Comparison Rate*More details

Important Information and Comparison Rate Warning

Basic Variable vs. Standard Variable Rate Home Loans: What’s the difference?

 Brooke Cooper

Published on 17 Apr 2024

Fact checked

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Standard variable rates and basic variable rate home loans might sound near-identical, but that’s far from the truth.ON THIS PAGEWhat is a standard variable rate?What is a basic variable home loan?Competitive basic variable rate home loans on the market nowHow do lenders set their standard variable rates?

From amortisation schedules to loan-to-value ratios, plenty of terms can perplex home loan borrowers. Two that pop up a lot are standard variable rates and basic variable rate home loans. While the pair might appear synonymous at first glance, in practice, this is far from the case.

A standard variable rate is typically a lender’s default variable rate and is used to price its home loan book. It’s also the rate to which a borrower might automatically switch after a fixed-rate period concludes, or the one a borrower might default to on the expiry of a discount period. 

On the other hand, a basic variable rate home loan is a common name for a specific mortgage product. Normally, a lender’s basic variable rate home loan represents its most stripped-down, or basic, mortgage option. It’s normally designed to provide borrowers with a straightforward, no-frills financing solution, and might come with a lower rate than other products. 

If you’re wondering how variable rates differ from fixed rates, check out our guide on the main types of home loans in Australia.

What is a standard variable rate?

Most lenders will advertise a standard variable rate. It’s sometimes abbreviated to SVR or called a reference interest rate. The standard variable rate is generally the rate a lender considers when pricing other home loan interest rates within its product line up.

“Rarely ever do you see anyone paying the standard variable,” Little Red Shoes mortgage broker Rebecca Jarrett-Dalton told Your Mortgage. 

“It’s just used as a reference rate in order to calculate discounts.

“Most people are getting a discount.”

Speaking to Your Mortgage in April 2024, Ms Jarrett-Dalton said many of the big banks’ standard variable rates currently sit at around 9% p.a. That’s compared to the average variable interest rate on a new owner-occupied home loan – 6.3% p.a. as of February 2024, according to Reserve Bank of Australia (RBA) figures.

One common way a borrower might find themselves on a standard variable rate home loan is on the expiry of their fixed rate period. In such cases, a homeowner might be automatically charged a lender’s standard variable rate. However, Ms Jarrett-Dalton notes many lenders offer borrowers facing the ‘fixed rate cliff’ a discounted variable rate, presumably in order to secure their business. 

Perhaps confusingly, many lenders have been known to name their basic home loan product something along the lines of ‘standard variable rate home loan’. On that, let’s consider the definition of a basic variable home loan.

What is a basic variable home loan?

A basic variable home loan, on the other hand, is typically a product in itself. This type of mortgage is generally appealing to homeowners who wish to keep their costs down or who want a simple home loan product without any bells and whistles.

“Many of these offer interest rates up to 3% lower than a lender’s standard variable rate,” Ms Jarrett-Dalton said. 

She notes basic variable rates typically offer fewer features – for instance, they will rarely come with an offset account – and generally don’t demand many or any ongoing fees. These days, most basic variable rate home loans also offer unlimited extra repayments and redraw facilities.

For those who require a little more flexibility, such as property investors, a more feature-rich home loan might be more suitable. They might appreciate the addition of an offset account, for instance, even if it means paying higher annual fees or securing a less competitive interest rate.

A variable rate home loan won’t suit every borrower, either. A fixed rate home loan promises peace of mind, allowing borrowers to lock in an interest rate for a set amount of time. Though, Ms Jarrett-Dalton warns a person signing onto a fixed rate won’t be able to realise the benefits of rate cuts if and when they occur. Additionally, fixed rate loans typically restrict how much extra a borrower can repay, thereby limiting their flexibility.

Competitive basic variable rate home loans on the market now

If a basic variable home loan product sounds right for you, we’ve compiled some of the lowest rate offerings available at the moment.

Lender	Interest Rate	Comparison Rate*
		5.29% p.a.	5.33% p.a.	Owner OccupierVariablePrincipal & Interest10% Min DepositRedrawExtra Repayments	Available for purchase or refinance, min 10% deposit needed to qualify.No application, ongoing monthly or annual fees.Dedicated loan specialist throughout the loan application.	More details	Compare	Promoted	Disclosure
		5.24% p.a.	5.15% p.a.	Built and funded by CommBankOwner OccupierVariablePrincipal & Interest20% Min DepositRedraw	A low-rate variable home loan from a 100% online lender.Backed by the Commonwealth Bank.	More details	Compare	Disclosure
		5.39% p.a.	5.43% p.a.	Owner OccupierVariablePrincipal & Interest10% Min DepositOffsetRedrawExtra Repayments	Available for purchase or refinance, min 10% deposit needed to qualify.No application, ongoing monthly or annual fees.Quick and easy online application process.	More details	Compare	Promoted	Disclosure

Important Information and Comparison Rate Warning

How do lenders set their standard variable rates?

All that might lead one to wonder; what factors do banks consider when they set standard variable rates for home loans? A lender’s product team takes into account many factors when deciding the rates for borrowing and saving. 

According to Ms Jarrett-Dalton, market price and profit margins are two of the most crucial considerations pondered. Let’s take a closer look at those two factors:

1. Market price
   This refers to the competitive landscape. Banks need to offer rates that are attractive enough to draw customers but high enough to ensure profitability. Simply put, if other banks offer lower rates, a bank may lower its rates too to stay competitive.
2. Profit margins
   Banks typically aim to make a profit. To do so, they must set rates that cover their costs, including what it costs them to borrow money (influenced by the RBA cash rate), and still leave room for profit. 

How the RBA cash rate impacts standard variable rates 

Let’s get technical on how the RBA cash rate plays in here. The RBA cash rate is the interest rate banks must pay each other to borrow funds overnight.

Australian regulations dictate banks must hold a certain amount of their customers’ deposits at the end of each day so they can meet any demand for cash. Throughout a given day, a bank will engage in numerous transactions that impact its cash position – such as providing funds for customer withdrawals, transacting payments, and providing loans. Some days, a bank might find that outgoing transactions outweigh incoming transactions. To cover the resulting shortfall, it may borrow money from other banks overnight. The cash rate is what it must pay other banks to do so. 

When the RBA cash rate is low, it’s cheaper for banks to borrow money overnight. Consequently, they’re likely to lower the interest rates on loans, benefiting borrowers. So, in a low cash rate environment, a bank’s standard variable rate – and the other interest rates it uses the standard variable rate to price – will typically be lower.

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