According to realestate.com.au, property investors are increasingly turning to non-bank lenders for finance despite paying higher interest rates than the major banks offer, a direct response to landmark negative gearing changes handed down in the federal budget. The shift marks a structural change in how leveraged property purchases are being funded in Australia, with borrowers willing to absorb a rate premium in exchange for finance that the big four and other authorised deposit-taking institutions are no longer prepared to offer on the same terms.
Why Investors Are Paying More to Borrow Less Conventionally
The budget's negative gearing reforms have altered the calculus for property investors who previously relied on the big four banks and other mainstream lenders for straightforward, lower-cost finance. With the tax treatment of investment property loans now less favourable, some investors are finding that the deals they once secured through mainstream lenders no longer stack up, prompting them to seek finance through non-bank lenders instead. Non-bank lenders, which are not bound by the same APRA capital and liquidity rules as the major banks, have stepped into that gap.
This matters because it signals a quiet but meaningful reallocation of investor credit away from the regulated banking sector. Non-banks typically fund their loan books through wholesale and securitisation markets rather than retail deposits, which gives them more flexibility on borrower profile and loan purpose but also means their pricing can move differently to the banks. For investors, that funding difference translates into materially higher rates for borrowers who go down this path, yet the trade-off is evidently still worth it for those who can no longer get a deal that works through a mainstream lender.
For investors currently weighing finance options, the practical implication is straightforward: non-bank finance should be treated as a tool for a specific situation, not a default choice. Borrowers need to run the full cost of a higher rate against the tax and cash flow benefit they are chasing before committing.
What This Means for the Broader Lending Market
The emergence of a two-speed lending market — cheaper, more conservative finance through the majors, and pricier, more flexible finance through non-banks — reflects how quickly borrowers are adjusting to the new negative gearing settings. Investors with straightforward servicing profiles will continue to qualify at the banks, while those structuring purchases around the new tax rules, or seeking finance on properties the majors now view as higher risk, are increasingly being pushed toward the non-bank segment.
A larger non-bank share of investor lending also means a larger share of mortgage credit sits outside APRA's direct oversight of the major banks. Readers tracking the finance side of this story in more detail can follow ongoing lending and property market data at REAStats, which tracks how these shifts are playing out across the broader lending and transaction market.
Background: How Finance Settings Interact with Buyer Schemes
While this story centres on investors rather than first home buyers, the underlying mechanics of how lenders assess risk, price loans, and respond to policy change are the same system that governs access to schemes such as the First Home Guarantee and other low-deposit pathways. Readers wanting a fuller picture of how government-backed schemes interact with standard bank lending can consult the Australian Property Forum's First Home Buyer Schemes in Australia — Complete Guide, which sets out eligibility and structure for grants, deposit schemes and stamp duty concessions that remain largely unaffected by the investor-side changes driving this story.
Investors restructuring their holdings in response to the negative gearing changes should also revisit how depreciation schedules interact with their new finance arrangements, since higher borrowing costs change the net return calculation on every property in a portfolio. The Forum's guide on Property Depreciation Schedules Explained is a useful reference point for investors recalculating after-tax returns under the new rules.
Practical Implications for Borrowers and Investors
For existing investors with properties geared under the old rules, the first practical step is checking whether current loans are still fit for purpose. Many will find that staying with a major bank lender, even on tighter terms, remains cheaper over the loan term than switching to a non-bank at a higher rate, unless the non-bank route unlocks a structure that materially changes the tax outcome.
For investors actively shopping for new finance, the message from this shift is to treat rate alone as only part of the decision. Non-bank lenders can offer flexibility on loan purpose, servicing calculations and property type that banks increasingly won't match, but that flexibility carries a cost, and borrowers should weigh the full life-of-loan impact of a higher rate before assuming a non-bank deal is the only path forward.
This article was produced with AI assistance and reviewed for accuracy. Content is for informational purposes only and does not constitute financial or property investment advice.
