Is it Risky to Get Your Mortgage Through a Small Lender?

Understanding small home loan lenders and other types of institutions can help you gain an insight to their benefits and levels of risk. Find out more.

When searching for a mortgage, it’s important to look at the home loans available to you. This can mean exploring second and third tier lenders so that you have a full scope of your options. Increased visibility has helped some people find competitive products with smaller lenders, while leading others to ask if there is an increased risk when getting a home loan outside of the majors. Most concerns seem related to the stability of smaller institutions and how this might impact you, your house or your home loan. We explore these potential risks by taking a look at the history and impact of lender failures in Australia, along with the considerations of borrowing with a smaller lender.

Is Failure Likely? Has it Happened Before?

The recession in the 1990s and Global Financial Crisis in the 2000s have had lasting impacts on Australia’s banking industry. A few Australian institutions were hit hard, resulting in the acquisition of some and insolvency for others. So, yes, failure of an Australian lender has happened before, but the positive to be drawn from this is that banks and the government listened and learned. While many factors were at play, from the world economy slowing to high interest rates on business lending, it’s been speculated that poor lending standards and the high cash rate were significant contributing factors to the collapse of some lenders in the past. However, these events have shaped and improved policies by highlighting deficiencies not previously addressed. This has helped form the basis of the National Consumer Credit Protection Act, which not only mitigates risk to the lender by enforcing responsible lending, but also protects the consumer. Further to this, the government has introduced a guarantee for some deposit accounts (up to $250k per person, per institution) to give consumers greater peace of mind that their money is protected. While the government guarantee does apply to mortgage offset accounts, it’s important to note that this doesn’t extend to non-bank accounts and redraw facilities aren’t covered.

What Happens if Your Lender Does Fail?

An important aspect to remember about your home loan is that it is an asset in and of itself. This means it can be bought and sold to another institution, big or small. If a lender is failing, there are three likely scenarios:

  1. It will receive government help; or
  2. The lender will be bought by a larger institution; or
  3. A larger institution will buy the asset that is your mortgage. Scenarios one and two will mean that there is little, if any, change to your mortgage; the second scenario will mean that you now have a new lender!

What Happens if You Do Get a New Lender?

Outside of the news being a bit of a shock, not much should be different for you. You’ll receive an ‘express written notice of the assignment’, which tells you that your mortgage has been transferred. This won’t impact your agreement, as those contract conditions should still remain in place, but will mean your payments start going to a new institution and can also result in interest rate changes. The good news here is that you don’t lose your home or mortgage, you just get a new lender. So long as you continue making your repayments on time and aren’t in default, there shouldn’t be any problems.

What About Smaller Lenders?

When investigating the products available in the market, understanding the various types of institutions can help you gain an insight to their benefits and inherent levels of risk. Let’s focus on small lenders. Small lenders will typically get their funds from other sources, usually a major bank. This can have both benefits and drawbacks. The main concern is that they are reliant on external parties for the money they can lend. This means that their ability to gain funding is heavily influenced by the cash rate and they are more vulnerable to economic conditions. However, this also allows them to offer more tailored products that can sometimes be cheaper than the majors, while providing flexibility to consumers who may not be able to borrow with bigger institutions. Another benefit of small lenders is their highly personalised service, often lacking in big banks.

Keep in Mind

At the end of the day, it’s important to find a home loan that suits you – whether that be with a small lender or major bank. At UNO, we believe you should explore the options available to you. Search for what’s out there or book in a quick call with our customer care team. Image via Small House BlissBook a call in with UNO

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Sam Rezai
October 2, 2024
I have gone through 6 different mortgage brokers prior to meeting Andrew Wyers. He is the most patient mortgage broker I’ve encountered and also the most knowledgable about the bank’s lending process and products available. It took me 1 year to find a house I was happy with and Andrew was always there to assist with any issues or questions I had; he always return my phone call, even on the weekends or when his away on holidays. The loan process was smooth and I had no complications. The process with Andrew was again nice and easy, he took the time to find and put together the right package that was suited to my situation. I have recommended Andrew to my family & friends and everyone have been grateful and completely satisfied with his service.
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S Wilko
September 23, 2024
I had not dealt with Scott or UNO before finding them on the internet. Even as an Australian citizen living and working overseas, I knew obtaining a loan would be difficult. However, Scott went above and beyond what I expected from a mortgage broker. I genuinely don’t think you could find another company that works as hard as they did to get my home loan approved. I cannot recommend them highly enough. Everyone I dealt with at UNO were extremely professional and helpful. If you are looking for a broker, you would be mad not to give them a go. Thanks to Scott Wilkinson, Dalby Bajwa, Jena Lasquite and Andrew Pacini. Shaun.
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September 3, 2024
I had an outstanding experience with Tian Liu. He was incredibly professional and attentive, going above and beyond to meet my needs. His expertise and dedication made the entire process smooth and stress-free. Tian's deep knowledge of the market and commitment to finding the best solutions for his clients truly sets him apart. He was always available to answer my questions and provided invaluable guidance throughout. I highly recommend Tian Liu to anyone in need of a reliable and skilled broker!"
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Nathanael Chin
September 3, 2024
Tian Liu provided exceptional service throughout the entire process. His professionalism and keen attention to detail were evident from the start. Tian consistently kept us informed and offered insightful advice that made us feel confident in our decisions. He truly cares about his clients and works tirelessly to ensure the best possible outcome. We couldn't be happier with his assistance and highly recommend Tian to anyone looking for a trustworthy and knowledgeable broker.
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Patrick Winters
August 14, 2024
For the past three years, it has been an absolute pleasure to work with Mike Parsons. He has consistently helped us navigate commercial property loans with skill and efficiency. Mike’s timely and professional responses to our inquiries have been invaluable. We have built a strong, reliable relationship with him and eagerly anticipate continuing our collaboration in the future. We highly recommend his services.
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Lee Robibaro
August 6, 2024
I am so thankful and grateful to have Scott Wilkinson as my broker. He not only looked after me every step from start to finish he gave me confidence and I was able to trust him and his expertise. My children and I are now happy in our new home and very appreciative of Scott's help. I will definitely be only having Scott as my broker from here onward as there is no mucking around and straightforward answers. Thanks again
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Steve Mav
August 6, 2024
Scott and the whole team at uno have been amazing. Super responsive and helped us achieve a result that we couldn’t have possibly achieved on our own.
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Thien Pham
August 5, 2024
Scott, Dalby and Jena were awesome to work with for my recent Home Loan, they are responsive and knowledgeable - which helped ensure a smooth purchase from pre-approvals to settlement. This is the second property I've purchased with UNO as my mortgage broker and would definitely recommend their services. Thanks again to the UNO Team for the awesome support.
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Scott Hutchinson
August 5, 2024
I am writing this summary in support of recommending Mike Parsons as a Mortgage Broker. At the time of writing this, I have known Mike for 4 years and he has executed 4 mortgages deals for me (including 2 refinances) over that time. Mike has provided me incredible service as a mortgage broker as follows : - Works painstakingly on getting the scenarios together to provide you options that optimize your position. - Works inordinate hours on the detail necessary to support the scenarios. - Mike keeps you updated on the status and progress of the applications and also helps you work through answering questions and any complexities that may arise. -In my cases, given the complexities and timings of my situations , these application processes would take many weeks to finalize . Mike never gave anything other than utter commitment and focus to getting the job done. Mike acts as a true business partner throughout this whole broker /mortgage journey. I simply would only go to Mike for any future dealings on getting a loan from a bank (and as will my kids in the future !) . There is no way a bank (I have seen anyway) would provide this kind of time nor service to a customer. You can rest assured that once Mike has done the deal, you have ended up with the most optimized position taking into account all the variables/scenarios in play. Scott Hutchinson
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Jason Seam
August 5, 2024
I've worked with Scott Wilkinson for my last 2 properties and he's been excellent. He sourced multiple options and didn't push a specific bank, tailoring his recommendations to me based on my requirements. I was specifically requesting a "medico loan" and Scott could navigate that extra requirement with expertise. When I was initially working with Scott, I was also trialling 2 other brokers and neither of those 2 had the same breadth of lenders, or could provide the same deals. I've referred multiple buyers to Scott and his team; one of them said to me after working with him, "how'd you find this guy, he's so good compared to all the other broker's I've worked with!" I'm going into my next purchase with Scott as my broker partner again. I recommend him to everyone
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Tina Anderson
July 29, 2024
My experience with Mortgage Broker - Scott Wilkinson, and his team - exceeded my expectations! I couldn’t be happier after settlement - in this current financial climate. He listened to what my requirements were in a loan and then devised a suitable plan for me moving forward. Which was something I didn’t think was possible to achieve. I strongly believe that Scott’s qualifications and previous experience in the Finance Sector - sets him apart from other Mortgage Brokers as he has more insight into the industry and the needs of the customer. Scott was professional, provided solid options, was timely with communication and gave great advice. I will definitely be using Scott’s services in the future and I highly recommend him to anyone as a Mortgage Broker.
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Marlon Baena
July 22, 2024
Karis dedication to assisting with our home loan, even while I was on holidays, truly exemplifies a commitment to excellent service. It's the small things that often make a big difference, and it seems Karis attention to detail and clear communication were key to our smooth home purchase. I highly recommend using UNO and Karis for your home loan needs.
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