One Melbourne-based non-bank lender crossed $25 billion in assets under management in early 2025, up from $20 billion six months earlier. The firm’s broker network expanded roughly 25% over the past year, driven by demand from borrowers the majors are turning away: self-employed, investors with multiple properties, and anyone whose income doesn’t fit a payslip template.
That growth pattern isn’t unique. Across the non-bank sector, origination volumes are climbing while the Big Four tighten serviceability buffers, lift deposit requirements, and slow approvals for anyone outside vanilla wage-earner profiles. The question isn’t whether non-banks are growing, it’s whether they’re creating new credit or simply charging more for loans the majors used to write.
Why borrowers are moving to non-bank lenders
Major banks respond to regulatory pressure and funding cost changes by narrowing their credit boxes first. Post-Budget, with APRA watching serviceability and provisioning closely, the four largest lenders have lifted income verification standards, applied stricter debt-to-income caps for investors, and slowed turnaround times on complex applications.
Non-bank lenders operate under a different funding model, they raise capital from institutional investors and high-net-worth individuals rather than retail deposits, which gives them more flexibility on credit policy. They can price risk into the rate rather than declining the application outright. For a self-employed borrower showing two years of strong tax returns but variable monthly income, that difference is the gap between a 6.8% approval and no loan at all.
Brokers report the shift is most visible in three segments: investors adding a third or fourth property, self-employed borrowers (tradies, contractors, small business owners), and anyone refinancing out of a fixed rate who no longer meets their original lender’s updated serviceability test.
The cost and the trade-off
Non-bank lenders typically price 50 to 150 basis points above the major banks’ standard variable rates. On a $600,000 loan, that’s an extra $3,000 to $9,000 in annual interest. The trade-off: faster approval, fewer overlays, and willingness to assess deals the majors won’t touch.
For borrowers, the calculation is straightforward if the alternative is no loan. For the broader credit market, the question is harder. If non-banks are writing loans to creditworthy borrowers the majors have mispriced or over-regulated out of reach, they’re improving capital allocation. If they’re extending credit to marginal borrowers at higher rates during a rising-unemployment cycle, they’re building a concentration of higher-risk debt outside the regulated banking system.
The data so far suggests both dynamics are in play. Non-bank arrears rates remain below long-term averages, but the sector’s loan book is skewing toward higher-LVR investor loans and interest-only structures, both of which perform worse in a downturn.
What’s changed in the last six months
Residential lending dominated non-bank origination through mid-2024. Since then, construction and commercial lending activity has picked up noticeably. That shift reflects two pressures: residential construction finance has become harder to access through the majors (builders, developers and owner-builders face longer approval queues and higher equity requirements), and commercial borrowers are refinancing ahead of rising vacancies in some CBD office markets.
The construction lending uptick is worth watching. Non-bank lenders use progress-based drawdowns and maintain tighter project oversight than the majors, but they also charge higher establishment fees and apply shorter loan terms. If the residential construction cycle stalls due to cost blowouts or demand weakness, non-bank lenders holding that exposure will reprice quickly, which means fewer options for the next borrower.
Key numbers: One large non-bank lender reported assets under management rising 25% in six months, broker network growth of 25% year-on-year, and an investor base exceeding 130,000 individuals and institutions. Industry-wide, non-bank mortgage approvals are running 18% above the same period last year, according to recent broker settlement data.
Who this benefits and who it doesn’t
Brokers operating in the alternative lending space are seeing strong pipeline growth, particularly those with clients in the investor, self-employed, and construction segments. Borrowers who can service a loan but don’t fit major-bank criteria now have a viable path, even if it costs more.
The risk sits with borrowers at the margin: those approved by a non-bank lender at 90% LVR and a higher rate, who wouldn’t have qualified under a major bank’s serviceability buffer. If unemployment rises or property values fall, those borrowers have the least equity cushion and the highest repayment burden. Mortgage settlements jumped 13% recently, with refinancing accounting for much of the volume, a sign that some of this activity is borrowers moving between lenders rather than new credit creation.
For the market overall, non-bank growth is a release valve during tight credit conditions, but it also shifts risk outside the most heavily supervised part of the financial system. APRA doesn’t regulate non-bank lenders directly; they answer to ASIC on conduct and to their own investors on credit performance.
Risks to watch over the next twelve months
Three scenarios could reshape this dynamic:
Base case: Majors keep serviceability settings tight through 2025, non-banks continue to grow market share in investor and complex-income segments, arrears stay low, and the sector remains a niche rather than systemic risk. Borrowers pay a premium for flexibility, brokers earn higher commissions, and credit allocation improves at the margin.
Upside: RBA cuts rates earlier than expected, majors ease serviceability buffers in response, and non-banks face renewed competition, which compresses their pricing power but improves borrower outcomes. Credit growth broadens without concentrating risk.
Downside: Unemployment rises above 4.5%, property prices fall 5–10% in major markets, and non-bank borrowers, disproportionately investors and self-employed, face both income stress and negative equity. Arrears climb, non-bank lenders tighten credit sharply, and the sector’s recent growth reverses, leaving borrowers with fewer options and no clear path to refinance.
The variable to watch: non-bank arrears rates, published quarterly by some lenders. If those tick up while major-bank arrears stay flat, it confirms the sector is writing to a riskier cohort. If both move together, it’s a cycle issue, not a credit-quality issue.
One thing to do now
If you’re refinancing, comparing offers, or adding a property in the next six months, get a parallel quote from both a major bank and a non-bank lender before you commit. The rate difference tells you the market’s view of your credit risk, and the approval speed tells you where competition is tightest. Don’t assume the major bank will match, credit policy has tightened faster than advertised rates suggest.
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General info, not financial advice.
