Bypassing the big banks: How small lenders are pushing back to win your business

When it comes to choosing a home loan lender, it's often the established reputation and familiarity of larger banks that lures borrowers.

With a long-standing presence in the market, these household names seem to provide a sense of security and reliability.

Like with any product, big brand logos can evoke a sense of comfort for many. With well over 100 lenders in the Australian market competing for business however, there are a large number of small and specialist lenders who are working hard to remain competitive against the big guns.

'Preparing for a home loan application': youtube.com/mortgagechoice

Here are some ways smaller lenders may actually be better:

Lower fees

Great Southern Bank deputy chief executive Megan Keleher tells Mortgage Choice that smaller lenders don't pay shareholder dividends can reinvest profits back into the business, benefiting customers.

"Profits are reinvested in the bank, allowing us to offer competitive rates, enhance our services and support our communities," she says.

In addition to offering lower rates, smaller lenders may accept smaller deposits and offer greater flexibility with loan-to-valuation ratios (LVRs).

'What is LVR?' youtube.com/mortgagechoice

Often, they're willing to approve loans with an LVR higher than the typical 80%, which is considered risky by larger banks.

Greater flexibility

Smaller lenders may also provide borrowers with greater flexibility, especially in situations that aren't straightforward.

"We frequently offer solutions where larger lenders don't," Better Mortgage Management managing director Murray Cowan says. "Handling cases that are a bit outside the square is our bread and butter."

For clients with credit impairments or difficulties meeting traditional lending guidelines – like having one year's financial records instead of two, or irregular finances if self-employed — smaller lenders can be more adaptable, finding creative ways for clients to demonstrate the ability to repay a loan, Mr Cowan explains.

"We might use alternative documentation to prove serviceability. This could involve obtaining a declaration from an accountant affirming the client's ability to make repayments without financial strain, relying on the latest two sets of Business Activity Statements instead of a tax return, or reviewing business banking statements."

In addition, small lenders may be more likely to lend to non-residents and ex-pats who have been turned down by the big banks, who consider them high risk.

"We can often find solutions for them, or offer higher LVRs," Mr Cowan says.

He added that small lenders also tend to provide more flexibility for those seeking self-managed super fund (SMSF) loans or financing for commercial or NDIS properties.

Alternative documentation can often be used by smaller banks to determine serviceability. Picture: Getty

Making moves

In an ever competitive economy, agility is vital to remain in the game. With interest rates at a 13-year high of 4.35%, prospective home owners are keener than ever to make sure they are locking in the most competitive loan.

Ahead of the Reserve Bank of Australia's next meeting on 18 February, National Australia Bank (NAB) is the only one of the big four to have cut fixed rates in 2025.

The move early this week saw the bank move its lowest fixed rate option to 5.84%. NAB's decision, while ahead of ANZ, Westpac and the Commonwealth Bank, comes a fortnight on from Macquarie Bank making the same move and firing up competition among lenders before rates have even been cut.

Faster turnaround times – sometimes

Ms Keleher claims smaller lenders like Great Southern Bank can absolutely compete on turnaround times.

Great Southern Bank chief executive Megan Keleher says that profits are often reinvested directly bank in with smaller lenders. Picture: Great Southern Bank

"We’ve become a market leader when it comes to home loan approvals, known for our average approval times in under five days and many customers in under two days," she says.

Despite this, Cowan admits it can be hard for smaller lenders to compete with the big guns on technological efficiencies, which can speed up applications.

"Many big banks now have advanced technology, enabling them to process applications swiftly, at least for straightforward customers," he says.

Do the comparisons

Whatever your situation, it is important to speak to those around you, check out customer reviews and most crucially, enlist the help of a mortgage broker.

Brokers can compare lenders for you when it comes to metrics like rates and processing times, as well as talking you through the benefits of smaller or larger lenders to your specific circumstance.