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The Australian Finance Industry Association (AFIA) has released its first dedicated report on residential mortgage non-bank lenders (RNBLs) – Competitive, Innovative, Responsible – outlining the critical role this segment of the lending market plays in the Australian mortgage industry.
The report – released on Wednesday (3 December) – pulled on responses from AFIA’s Residential Mortgage Financial Year 2025 survey (collected in October and November 2025 for FY25 from eight AFIA non-bank lenders) and is supplemented with analysis from Positive Economics Advisory and publicly available information (including from the Reserve Bank of Australia and financial regulators).
It found that RNBLs – which typically source funding from capital markets rather than deposits (as banks do) – play a critical role in fostering competition and innovation in the mortgage market, providing products and services that major banks often do not offer.
The report outlined that residential non-banks – which held around $72.2 billion in mortgage loans at June 2025 – tend to focus on creditworthy borrowers who may not fit the standard profiles that traditional banks prefer. They have a particular willingness to lend to underserved borrowers – including self-employed and small-business borrowers – and continuously innovate with new product structures, such as flexible loan repayment options or niche products, it said.
Indeed, AFIA noted that a mortgage system relying solely on traditional banks would tend to favour simpler, lower-risk borrowers, while RNBLs expand access without adding prudential risk.
AFIA found that RNBLs’ new lending was more evenly split between owner-occupiers (48 per cent) and investors (52 per cent) – compared with majors’ strong owner-occupier focus (63 per cent) – which it said demonstrated non-banks’ role in meeting investor demand when ADI portfolio settings tighten.
It flagged that RNBLs supported around 51,000 Australians to purchase or refinance a home in FY25, with the majority of loans (79 per cent) for detached housing.
The report also sought to dispel common misconceptions about the non-bank lending space.
It said that concerns about non-bank lending being risky are misplaced and suggested that RNBLs maintain rigorous credit assessments, responsible lending practices, and consistently low arrears rates, reflecting both sound risk management and strong support for customers facing financial difficulties.
In fact, AFIA found that average RNBL loan sizes were smaller than major banks, at about $660,000. Their share of high loan-to-value ratio (LVR) loans was lower than that of the major banks, as was the proportion of loans in arrears.
According to the report, their proportion of new loans above 80 per cent LVR is less than 20 per cent, which is lower than that of major banks (which have more than 30 per cent of new loans with an LVR over 80 per cent), which they suggested indicates non-banks are prudent mortgage lenders.
Moreover, the report said that 30–89-day arrears at the non-banks were around 0.67 per cent – compared to 0.58 per cent at the majors – and 90-plus day arrears were also lower (at 0.81 per cent versus 1.10 per cent).
Part of this may be that non-banks are providing hardship assistance when such assistance is requested (an area that has recently landed some major banks – including National Australia Bank [NAB] and Australia and New Zealand Bank [ANZ] – in hot water).
However, the report noted that only a small share of the overall customer base – approximately 24,600 applications – were for hardship assistance in FY25.
The report reads: “Non-bank lending to households is sometimes mischaracterised as risky or problematic. This understanding ignores two fundamental realities: the rigorous credit assessment standards non-bank lenders employ and the financial capability of their borrowers.
“The evidence in this report paints a different picture. RNBLs consistently report low arrears rates, rates that decline further over time. This is a reflection of not only sound lending practices but also how RNBLs support customers, including those who encounter financial difficulties.”
AFIA said that it hoped the report would be a significant contributor to the debate on Australia’s residential mortgage system and the vital role RNBLs play in supporting Australians with their housing aspirations and boosting financial inclusion.
CEO Diane Tate commented: “Non-bank lenders are helping thousands of Australians achieve their home ownership dreams. They deliver competition, choice and access for borrowers, and operate under a robust regulatory and funding framework.
“Our report shows non-bank lenders open doors for borrowers overlooked by traditional banks, while pushing the market forward with competitive pricing, innovative products and better service for all Australians.
“The data confirms that non-bank lenders are well regulated and committed to responsible lending, consistently reporting low arrears rates, prudent lending standards and strong support for customers in hardship.
“Non-bank lenders are a disciplined part of the financial system – they’re licensed, consumer-regulated and held to the same responsible lending standards as traditional banks, delivering safe, responsible lending for borrowers.”
AFIA flagged that RNBLs are currently onboarding into a new industry code of practice – the Finance Industry Code of Practice – and will complete code accreditation by October 2026.
Tate concluded: “At a time where housing accessibility is front and centre, non-bank lenders are more important than ever, supporting everyday Australians like freelancers, contractors and small-business owners get on the property ladder.”
Brokers using non-banks in record proportions
The AFIA report comes as new data shows a surge in popularity for non-bank lenders.
As reported by our sister brand The Adviser, the latest Broker Pulse: Residential Lending report by Agile Market Intelligence confirms that brokers are turning to the non-banks in record proportions.
The survey – based on responses from 316 residential brokers collected between 1 and 17 November 2025 – found that 53 per cent of brokers used at least one non-bank lender in October 2025 – the highest proportion recorded to date.
This finding indicates that non-bank and specialist lenders are increasingly utilised as solutions within the broker channel.
The primary reason brokers used non-banks is due to their flexible policies.
According to Broker Pulse, 83 per cent of brokers cited ‘policies that fit their client circumstances’ as the primary attractor.
While this has historically been the primary reason why brokers choose non-banks, this has been growing in importance (this reason increased 2 percentage points since September 2025).
This indicates the non-bank segment’s central role in accommodating clients whose profiles require specialised assessment.
[Related: AFIA launches Finance Industry Code of Practice]