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Experts in the industry are raising concerns that the shift towards prioritising security over accessibility could lead to widening disparities in mortgage lending.
According to senior mortgage broker at Home Loan Experts (HLE), Jonathan Preston, alternative lenders are capitalising on this shift as traditional lenders continue to demand high levels of security for loans.
“Look at the rise of lenders like Prospa in the small-business space,” Preston said.
“They’re offering unsecured loans at around 2 per cent per month – similar to credit-card rates – because traditional banks simply don’t have the appetite for these kinds of risks anymore.
“If business lending were profitable, banks would do it. Instead, we see banks making unsecured personal loans at 12 per cent while mortgage rates sit around 6 per cent. That tells you exactly where the risk is being priced.”
Additionally, HLE said that banks are limiting competition and innovation, spurred on by shifting market dynamics and regulatory pressures.
“CBA trades at the highest multiple of any bank in the world,” Preston said.
“That tells you how risk-averse the sector has become. The focus is purely on safe, high-return lending, leaving small businesses and lower-income households out in the cold.
“The banks are private institutions. They won’t lend unless it’s profitable. Until regulations change, or there’s a shift in their risk appetite, we’ll continue to see non-bank lenders stepping in to fill the gaps.”
The rise of non-bank lenders has been observed for some time now, with many non-bank lenders such as ScotPac seeing an increase in their client numbers.
For example, ScotPac’s biannual SME Growth Index Report released in December last year found that the share of SME customers planning to partner with non-bank lenders for new investments rose to a record high of 54 per cent, up from 47 per cent in December 2023.
Additionally, GAP Business Loans director Peter Arnold also noted the emergence of private lenders as an alternative to the big banks.
“Traditional banks have long been the go-to institutions for borrowers, but we’re seeing a growing number of non-bank lenders filling the gaps,” Arnold said.
“Traditional lenders have responded to heightened regulations by tightening their lending criteria to reduce their risk exposure.”
[RELATED: Small businesses increasingly turning to non-banks for investment]
