Non-banks surge as borrowers prioritise flexibility over rates

  • June 11, 2025
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Non-bank lenders are gaining ground in the mortgage market as borrowers, particularly investors, prioritise flexibility and borrowing capacity over headline interest rates, according to Denjola Bhutia (pictured), Nine Ten Finance director.

“We’re seeing borrowers, investors in particular, who are happy to pay 50 basis points or even one percentage point more in interest just to access more funding,” Bhutia said. “They’re not just focused on the interest rate, but rather on accessing finance that achieves their property goals, and non-bank lenders are helping them get there.”

In 2024, non-bank lenders held an 11% share of Australia’s residential mortgage market, according to data from the Australian Bureau of Statistics. Their presence was even more pronounced in commercial real estate lending, where they accounted for an estimated 16% of the market, based on Foresight Analytics figures.

Non-bank sector growth backed by regulatory conditions 

According to the Reserve Bank of Australia’s April 2025 Financial Stability Review, non-bank lenders now account for 6% of the financial system’s assets, up from 5% in 2023.

This growth comes as major banks remain constrained by APRA-imposed lending buffers introduced in late 2021. These buffers require authorised deposit-taking institutions (ADIs) to assess borrowers at a rate three percentage points above their actual loan rate.

Despite growing calls to ease this buffer amid softening inflation, APRA has yet to make changes. For many borrowers whose capacity is limited under these rules, non-bank lenders offer an increasingly viable alternative.

Lower buffers and more flexible assessments 

Bhutia noted a clear shift in how non-bank lenders are approaching serviceability.

“We’ve noticed non-bank lenders lowering their assessment buffers, which means they can lend more,” he said. “While the big banks typically use a buffer of three percentage points on top of the current rate, many non-bank lenders are using a one to two percentage point buffer, and some have even removed it altogether.”

Although non-bank lenders remain subject to ASIC’s responsible lending obligations, their exemption from APRA’s prudential regulation gives them greater flexibility in how they assess borrowers.

Competitive edge in assessments and borrowing power 

That flexibility is reflected not only in lower buffers but also in more borrower-friendly criteria. Bhutia said non-bank lenders often:

  • Recognise negative gearing benefits more favourably
  • Use simplified expense assumptions
  • Calculate repayments based on actual, not inflated, figures

“All of this adds up to higher borrowing capacity for the client,” he said.

Competition is also heating up within the non-bank sector itself.

“The heightened competition isn’t just between banks and non-banks. It’s within the non-bank sector itself,” Bhutia said. “The field has definitely become more crowded. There are multiple tiers of non-bank lenders, and they’re all trying to gain market share by offering more attractive terms. Some are more conservative, while others are taking bigger risks in exchange for higher returns.”

Investor activity accelerates 

Investor demand is helping drive the shift. Data from the Australian Bureau of Statistics shows that between December 2023 and December 2024, the value of new home loan commitments by investors through non-ADI lenders rose 44.6%. In contrast, loans to owner-occupiers via non-ADIs grew 25.2%.

“An investor who’s maxed out with a major bank might find they can borrow an extra $100,000 to $400,000 through a non-bank lender,” Bhutia said. “That difference can mean securing the next property or missing out.”

Awareness grows among borrowers 

While some borrowers remain unaware of the options beyond the big four, Bhutia said the gap is narrowing.

“There’s still a knowledge gap where some borrowers don’t realise what’s possible outside the big four,” he said. “But that’s changing quickly. We’re seeing more and more clients asking about alternative lenders right from the start.”

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