May 1, 2020


Accrue Real Estate


Claire Hielscher

green plant in a clear glass cup

The future of lending in Australia

A home loan can mark the beginning of a strong financial future for many Australians. However, the lending landscape is currently at a turning point. The way borrowers are securing loans is shifting and the institutions providing them are also adapting to the changing times.

While a home loan is still a ticket to achieving financial goals, it’s important to understand the shifts in the market and how they could affect you. This article explores where the future of lending is heading in Australia and how to make these disruptions work for you.

A changing lending landscape

Traditionally, the way Australians have pursued a home loan has been relatively straightforward. Borrowers approach a lender for a loan – either through a mortgage broker or on their own – and the lender decides if they can service the loan.

However, the current landscape is coloured by regulatory change and increasing competition from fintech (i.e. financial technology) disruptors. On the back of the Royal Commission, regulations changed dramatically, especially for the big banks.

The Royal Commission effect

The Royal Commission strongly encouraged the Australian Securities and Investments Commission (ASIC) to increase its enforcement practices on the big banks. Meanwhile, the Australian Prudential Regulation Authority (APRA) also strengthened lending guidelines for the financial services industry. As responsible lending was at the heart of the Commission, banks, lenders, brokers, and borrowers were all affected by the recommendations in the final report. Credit restrictions tightened and borrowers found it increasingly difficult to secure a loan.

Overall, trust in the big banks was effected by the Royal Commission. While the tried and true system of borrowing has now returned to some extent, it’s still noticeably different to a pre-Commission era. ASIC is still negotiating the changes to try and strike a balance between a minimising of unsuitable loans and a maximising of appropriate credit to borrowers who can afford it. At the same time, consumers are now navigating often competing forces of government incentive schemes, historically low interest rates and an increasingly competitive housing market.

In the face of these recent monumental changes and downturn in consumer confidence, a new type of lending has started to emerge: non-bank, fintech and neobank challengers.

New competitors are emerging

According to Deloitte, innovators in the fintech industry will continue to disrupt the traditional lending model for years to come. In fact, they’re projecting that unsecured lending is likely to be disrupted more than any other major project since the financial crisis. But who are these financial disruptors and what are they offering that’s so different to the big banks?

The rise of neobanks

Neobanks, or non-banks, are 100 per cent digitally facing with no traditional physical branches. If the big banks are the taxi industry, neobanks are Uber attempting to take a slice of the pie. Due to their lack of physical infrastructure and use of advanced mobile technology, many neobanks are operating to fight the bigger banks on two fronts: price and customer service.

Neobanks are offering customers something they’ve been looking for since the Royal Commission into traditional banks: a lender that will put their needs first. While neobanks aren’t different at heart to brick and mortar banks (they still have to abide by the same guidelines, such as possession of a full banking licence) they are offering something different to the traditional banking model. Neobanks are claiming that they will not only change how Australians bank, but will also change our relationship with money.

Consumers are starting to take notice. According to recent analysis of broker loans, funding costs and shifting regulations have allowed neobank challengers to take a substantial portion of traditional banking’s market share. In fact, lenders owned by the big four banks saw market share slide from 77 per cent to 67 per cent, while non-major lenders grew their share from 23 per cent to 33 per cent.

So, what does all this mean for the future of lending in Australia? These changes could be the start of significant transformations in our lending structure. Neobank players are starting to advance where major banks are still contending with recent regulatory and service demand from customers. In short, it’s reflective of a shift throughout Australia’s entire lending landscape.

Navigating a changing lending landscape

While the lending landscape in Australia is changing, it can be difficult to know how to approach it to best align with your home buying aspirations. Despite the fact many fintechs are optimistic about their lending capacity in the future, so far only one neobank is offering home loans to Australian borrowers. The future of lending in Australia is currently at an important crossroads. To navigate it well you need the right assistance to help you find the best deal, now and for your long-term financial future.

At Accrue, we always put our clients’ needs first. That’s why we make it our business to stay on top of all the latest changes and trends, especially when it comes to lending opportunities. Contact our team and let us help you better navigate the changing lending landscape with ease.

Disclaimer: This is general advice and has been prepared without taking into account your particular situation or needs. You should consider whether it is appropriate for you before acting on it.