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

5 stars for our service reviews from clients

Book Call Now

UNO home loans

Try Plans, by UNO
Mortgage calculators completely reimagined
Get Started
Considering a purchase or refinance?

Try Plans by UNO

Mortgage calculators completely reimagined
Get Started
☎️ 🚫 No cold call promise

Related Articles

TESTIMONIALS

What our customers are saying

Matt Carter
May 21, 2025
5 stars for our service reviews from clients
Paul from Uno has been amazing. Made it so easy! Highly recommend and made the finance process much more enjoyable experience for us.
Read more
Timothy Semsarian
May 17, 2025
5 stars for our service reviews from clients
UNO went above and beyond to help my wife and I with our home loan and settlement. Couldn’t recommend them enough - Jake Wood was an absolute legend! Kept us informed during the whole process and was very thorough with his work, even with a very tight timeframe. Thank you again for all your help, and looking forward to continue using your services!
Read more
Patti Jo Mogensen
May 16, 2025
5 stars for our service reviews from clients
100% Rockstar. We found Paul and Uno Home Loans from recommendations from people who had used his services. We know understand why he comes so highly recommended. We definitely put Paul and his team under pressure due to an oversight our end which meant that he had to don his superman cape and work miracles for us. We didn't appreciate the very very short window we created for ourselves (think less than two weeks for settlement). Paul was able to wave his magic wand, come up with multiple solutions to our situation and make it all happen seamlessly. It goes without saying then, without reservation that we recommend Paul and his team as our trusted mortgage advisor! Thanks again Paul. *****The limoncello is on route we promise :)
Read more
Lani Wards
May 13, 2025
5 stars for our service reviews from clients
Paul Davey worked very hard to get us the mortgage we required for our investment property. He is knowledgeable and approachable. Thanks Paul!
Read more
Michael Badham
May 13, 2025
5 stars for our service reviews from clients
Our entire process with Uno went very well. We had a unique set of requirements for our loan and our super friendly broker Mike Parsons managed to secure us the perfect outcome. Mike also worked above and beyond our expectations to make sure the whole process of completing the documentation of switching banks went smoothly.
Read more
Vanessa Koster
May 13, 2025
5 stars for our service reviews from clients
The service recieved from Paul was fantastic. He made the whole process stress free & easy. We started the process from NZ & Paul had everything ready for approval as soon as we landed in Aus. I would highly recommend Paul if you require a mortgage. You won't be dissapointed.
Read more
Peta Hemmings
May 13, 2025
5 stars for our service reviews from clients
Paul has been amazing throughout our entire home loan process, we have recommended him to many of our family and friends. He has been extremely helpful and professional right from the beginning.
Read more
Ryan Whittle
May 12, 2025
5 stars for our service reviews from clients
Highly recommended, Paul and his team made the process very streamlined delivering the best possible results.
Read more
Tiana Perez
May 10, 2025
5 stars for our service reviews from clients
Paul and Dalby were incredible to deal with, from the first interaction with Paul a few months prior, to getting approval to purchase, through to the last minute helping us with the final settlement details. Their communication was second to none and they truly went the extra mile. Paul managed to get us more borrowing power than dealing with the bank directly. I couldn't recommend Paul and his team enough. Paul and Dalby, thank you so much for putting hours and hours of work into our application. We really appreciate it!
Read more
Nicholas Violaris
April 14, 2025
5 stars for our service reviews from clients
Can not recommend UNO Home Loans enough, Scott Wilkinson and his team have helped us get a home loan in no time and they have been a breeze to deal with, great job guys, looking forward to working together more in the future
Read more
Lahnie Cooper
March 26, 2025
5 stars for our service reviews from clients
Jake Wood was a pleasure to work with and made this process extremely easy for me! I highly recommend Jake and the team at Uno.
Read more
Daniel Demosthenous
March 18, 2025
5 stars for our service reviews from clients
The team at UNO were absolutely fantastic at helping me set up and organise my new property purchase, Andrew answered all my questions promptly and went over and beyond to reassure me at any stage with his abundance of knowledge of the matter, also a big thank you to Dalby and Jena for helping with the process as well.
Read more