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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Sally Mackenzie
February 19, 2024
We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
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Rod
February 13, 2024
Scott and his team were just A-mazing. We felt supported through the whole process with the greatest quality and care. Every question answered right in time, or even before we asked. The process was smooth and we got the best outcomes we could have wished for.
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Angela Biddle
February 6, 2024
Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
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Fotis Bikas
January 15, 2024
I cannot help but congratulate Scott Wilkinson of UNO Home Loans for being an absolute credit to both his company and the entire loans industry. Scott is a truly rare gem of a broker in that he will not only go the extra mile to achieve for each customer the very best deal, but his knowledge of all and sundry within the industry is unsurpassed (you will see what I mean if you speak to him). Additionally, Scott has a clear passion for imparting his wealth of information with each customer, whereas the conversation with most other brokers would simply be over if they could not get you the best deal. For me, Scott Wilkinson of UNO Home Loans stands head and shoulders above the competition and I feel privileged to benefit both from his expertise and professionalism whenever it is time for a refinance or new loan.
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Tomoharu Matsui
January 11, 2024
Michael Parsons helped me a lot when it's difficult to establish my capabilities in loan.
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Gillian Kearon
January 9, 2024
I highly recommend Mike Parsons as a mortgage broker. I couldn't fault the service provided by UNO. Thanks Mike!
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Taner T
December 20, 2023
Thank you Eren Tan for the amazing service and support. Our Loan was a little tricky and complex for other lenders but Eren managed to get it over the line in record time. His professionalism and dedication to our needs was exceptional. If you need a Loan no matter how complex your situation, make sure you contact Eren at UNO Home Loans.
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Karaipu Brown
December 20, 2023
Buying & selling a house at the same time is very stressful but Scott Wilkinson from UNO home loans made sure we knew what was happening & took most of the stress away. He always kept us up to date and if we had a concern or wanted clarification on something we were able to call him, if he didn’t know the answer straight away he will find out and contact us back.. now we are enjoying our new house and turning it into a home :)
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Chris Anderson
December 18, 2023
Just completed my first loan with UNO which was so much easier than with other other brokers I have used in the past. Our broker MIKE PARSONS always had time for me and broke things down for me in the simplest of terms and was very patient with my silly questions and my constant changing of plans. I wish I had used them in the past as I wouldn't be in the situation I'm in now. Can't recommend them highly enough. Thanks UNO and Thanks MIKE 😊
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Stephen Broomfield
December 11, 2023
To be able to recommend Scott Wilkinson for your mortgage broker was a privilege. We had deals fall through but Scott supported, guided and stuck with us, proper partnership. The whole team at UNO helped us and supported us right through to after settlement. Made sure everything was correct and how we are progressing. Communication was amazing and straightforward and easy to understand. Transparent. We can not Recommend Scott and the team as Uno high enough. Use UNO with confidence.
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Tarek Hussain
December 6, 2023
Can't thank Amy enough for her hard work, dedication and determination on getting multiple loans completed for me. I wouldn't hesitate in recommending Amy and the Uno team to any of my associates. Will definitely be back in the near future!
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Linda
November 3, 2023
If you’re looking for a trustworthy, thorough, reliable & knowledgeable Mortgage Broker then you must call Anita Callaghan! I can’t even imagine how stressful this process would’ve been without her. Anita went above and beyond to make sure she answered every question, responded to every text (even on weekends/after hours), and followed up on every detail to ensure we had all the info we needed. Anita is a true people person who is warm, empathetic, kind and supportive. You can tell she loves helping people and loves what she does, which is probably why she’s so good at it! Can’t thank you enough Anita, or recommend you more highly! You’re the best!
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