A broker aggregator has reported a 68 per cent jump in non-conforming loan volumes since January, prompting it to add a new private lending partner to its white label range. The move points to a broader shift: as prime lenders tighten policy, more borrowers are paying up for alternative credit, and brokers are building the infrastructure to service that demand.
The pattern mirrors what’s happening across serviceability settings. Banks have lifted income buffers and tightened debt-to-income tests over the past eighteen months. The result is a widening gap between who qualifies for a prime rate and who doesn’t. Private lending fills that gap, but it comes with trade-offs borrowers need to understand before they sign.
Why the surge
Three forces are converging. First, stricter bank policy: higher serviceability buffers mean a borrower who qualified six months ago may not today, even if their income hasn’t changed. Second, interest rate levels: even as the cash rate holds, banks are repricing risk and trimming loan-to-value ratios in segments they consider stretched. Third, borrower composition: self-employed applicants, those with recent credit events, or buyers assembling deposits from multiple sources are hitting friction in prime channels and turning to non-conforming options faster than in previous cycles.
The aggregator’s new white label product covers bridging finance, first and second mortgages, and short-term business loans. It’s pitched at brokers serving business customers and borrowers outside standard policy. The fund manager backing the product described the timing as a response to legislative and market shifts that are reshaping what borrowers need and what prime lenders will approve.
The cost structure
Private lending rates typically sit 3 to 8 percentage points above prime, depending on loan-to-value ratio, exit strategy, and security type. A borrower paying 6.5 per cent on a bank mortgage might pay 9 to 12 per cent on a private loan. On a $500,000 loan, that’s an extra $12,500 to $27,500 in annual interest. Most private loans also carry establishment fees of 1 to 3 per cent, and some include exit fees if the loan is repaid early.
The value proposition for borrowers is speed and flexibility: private lenders can settle in days rather than weeks, and they’ll lend against security or income structures that banks won’t touch. The trade-off is cost and, often, a shorter loan term, many private loans are written for six to twenty-four months, with an expectation that the borrower will refinance to prime once their situation stabilises.
The catch
- Private lending costs 3 to 8 percentage points more than prime, plus higher fees.
- Most loans are short-term (6-24 months), so you need a clear refinance path.
- If your exit strategy depends on a valuation uplift or income event that doesn’t arrive on schedule, you may face refinance risk at an even higher rate.
- Broker commissions on private loans are often higher than on prime products, which creates an incentive misalignment if the broker isn’t transparent about cost and suitability.
Broker economics and the incentive question
Commissions on private loans can run 2 to 4 per cent upfront, compared to 0.5 to 0.7 per cent on a typical prime mortgage. For a broker, that’s a significant revenue difference on the same loan size. The risk for borrowers is being steered toward a private product when a prime option, even if it requires more documentation or a slightly lower loan amount, would be cheaper over the life of the loan.
The counter-argument from brokers is that many borrowers in this segment genuinely don’t qualify for prime credit, and private lending is the only way to unlock a time-sensitive opportunity, a property settlement, a business cashflow gap, a refinance to exit a higher-cost product. The tension is real, and the onus is on the borrower to pressure-test whether the private loan is the least-bad option or whether a restructured application to a prime lender might still work.
Who this helps and who it doesn’t
Private lending works best for borrowers with a clear, short-term need and a credible exit plan: someone bridging to a property sale, a business owner awaiting a contract settlement, or a buyer who can refinance to prime once a probate or tax issue resolves. It works less well for borrowers using private credit to stretch into a purchase they can’t service long-term, or those who assume they’ll be able to refinance on schedule without a concrete plan to fix whatever made them non-conforming in the first place.
The aggregator’s move also signals something about broker business models. As prime lending margins compress and competition intensifies, non-conforming and private loans offer a revenue boost. That’s not inherently bad, brokers need to get paid, and the work involved in structuring a non-conforming deal is often more complex than a vanilla mortgage. But it does mean borrowers should expect their broker to explain, in plain terms, why a private loan is the right call and what the total cost difference is compared to any prime alternative.
Scenarios for the next twelve months
Base case: if the Reserve Bank holds rates and banks keep serviceability settings tight, private lending volumes continue to grow. Borrowers who would have qualified for prime two years ago stay in the non-conforming channel longer, and the line between prime and private shifts upward in credit quality.
Upside for borrowers: if banks ease buffers or the RBA cuts rates, some of the current non-conforming cohort could refinance back to prime, reducing their interest burden. The risk for private lenders in that scenario is faster-than-expected repayment, which shortens their income window.
Downside: if unemployment rises or property values fall, borrowers in private loans face refinance risk. If their property value drops below the loan-to-value ratio a prime lender requires, or if their income deteriorates further, they may be stuck rolling the private loan at an even higher rate, or facing a forced sale.
What to do if you’re considering a private loan
Start by asking your broker for a side-by-side cost comparison: total interest and fees on the private loan versus the best prime option you might qualify for, even if that means a lower borrowing amount or more documentation. If the gap is $20,000 over two years, you need to be confident that the speed or flexibility of the private loan is worth that cost.
Second, map out your exit strategy in detail. What has to happen for you to refinance to prime, a tax return lodged, a property sold, a business contract completed? What’s your plan if that event is delayed by three or six months? If you don’t have a clear answer, the private loan carries more risk than the headline rate suggests.
Third, check whether your broker is disclosing their commission on the private loan. If they’re not willing to discuss it, that’s a red flag. A good broker will explain the economics and why they believe the product is in your interest despite the higher cost.
Finally, read the exit terms. Some private loans allow early repayment without penalty; others charge 1 to 3 per cent if you refinance before a set period. Know what you’re signing, because the cost of getting out early can be the difference between a useful bridging solution and an expensive trap.
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General info, not financial advice.
