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Navigating the surge: why is non-bank lending on the rise?

Non-bank lending, once a niche market, is on the rise in the Australain credit market. Non-bank lending has grown almost 15% p.a. on average since 2015 - double the growth of traditional banks (RBA, 2023). This increasing market share has increased access to a high-yielding asset class for investors. Non-bank lending still accounts for a small share of total credit in the Australian economy, while overseas markets set precedent for much larger potential market shares.

Now why has this been happening? The primary drivers for this growth are:

  1. Regulatory Changes: Non-bank lenders have typically grown in segments underserved by traditional banks. Tighter banking regulations and increased selectivity in borrowers have created a gap for non-bank lenders with more flexibility while still enjoying similar Loan to Value ratios as a traditional bank (a recent 2023 RBA review even found that the share of non-bank loans with high LVRs has declined to a level below that of banks).

  2. Speed and Accessibility: Timing can be everything in real estate, and non-bank lenders often have the ability to move faster and be more nimble than the lengthy processes and red tape of traditional banks. Whether it's short-term bridging loans, construction finance, or mezzaine debt, non-bank lenders offer speed to market and can tailor solutions that may not be readily available at a traditional bank.

  3. Investor demand: The growing demand from investors and institutions for higher-yielding assets has driven the expansion of non-bank lending in Australia. Investors seeking attractive returns are increasingly allocating capital to non-bank lenders, providing them with the necessary capital to fund property loans.

The growth of non-bank lending in Australia is changing the property debt market, offering borrowers an array of benefits such as flexibility, speed, and specialized loan products. This trend is not only changing the way Australians access financing for property investments but also creating a competitive environment that benefits borrowers with various financial profiles and a growing asset class available to investors.


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