Written by

Steven Lee

Mortgage Director, ODIN Mortgage & Tax

10+ years in Australian banking and mortgage lending

Last reviewed

Updated on: June 10, 2026 View profile →

Aussies Turning to Small and Mid Tier Banks to Refinance

Feeling the squeeze from rising costs? Your mortgage might be your biggest monthly burden — and more Australians are seeking better deals.

The tide is shifting: in Q3 2025, the Big Four banks’ combined share of home-loan originations dropped below 60 %, while non-major lenders — smaller banks and non-bank lenders — pushed past 40 % market share.

This guide digs into why borrowers are looking beyond the majors. You’ll see the key advantages smaller lenders now offer, who these challengers are, and what to watch out for before you make the switch.

Are Aussies Really Leaving Big Banks for Refinancing?

Yes, a clear and measurable shift is happening in the Australian mortgage market.

Evidence shows borrowers are looking beyond traditional options. Smaller banks are capturing a larger share of the mortgage market.

The Big Four banks still hold a dominant position. But their grip is loosening, especially for refinancing. Data for Q3 FY25 clearly shows this trend.

The Big Four’s combined market share fell to 59.9%. This was their lowest Q3 market share in three years. In contrast, non-major lenders saw their share climb. Their collective share rose to 40.1%. This highlights a consistent trend towards diverse lenders.

These smaller lenders have continued to grow their presence. This is true even when the market has slowed.

Refinancing activity reached a record low for the quarter. Yet, the share of non-majors in refinances grew to 43.6%. This resilience is significant. The value from smaller lenders is compelling. It attracts customers without an urgent trigger.

Why Smaller and Mid-Tier Banks Are Gaining Traction for Refinancing

The appeal of smaller lenders comes from many factors. These range from financial benefits to better service. They also include greater flexibility.

For many, these lenders offer lower rates, better service, and more adaptable loan conditions. This addresses pain points with larger institutions.

More Competitive Interest Rates and Lower Fees

A primary reason for refinancing is a better rate. This helps lower your overall loan costs.

Smaller lenders often have lower overheads. This allows for more competitive refinancing offers and mortgage products as they can pass these savings directly to you.

For example, you can save up to $1,032 per year on a $ 640,000 mortgage by switching to a smaller bank’s lower rate. Over a 30-year loan, that adds up to nearly $31,000.

Customer-owned banks may also provide a discount up to 0.3%. This can save you over $1,500 annually on a $500,000 mortgage.

Many also charge fewer or no ongoing fees. This challenges the “loyalty tax”. Existing customers at major banks often have higher rates.

Superior Customer Service and Trust

Many borrowers want more than just a good rate. They want a trusted relationship with their bank. In this area, customer-owned banks consistently excel.

Small and mid tier banks consistently achieve a higher satisfaction rate because of their “people-first approach”.

Customer-owned banks are owned by their customers, called members. They focus on reinvesting profits for the benefit of their members. This provides better service and value.

This model fosters high levels of trust. You feel like a valued member. Not just an account number.

Tailored Solutions and Easier Approvals

Lending rules at major banks can feel very rigid. In contrast, smaller lenders offer more adaptability. This is especially true for non-bank lenders.

APRA imposes a lending buffer on banks. You are assessed at 3% higher than your actual rate. Many non-bank lenders use a lower buffer of 1-2%.

This means they can approve you for a larger loan. This flexibility helps “mortgage prisoners”. These are borrowers trapped with their current lender because they can’t meet the stricter standards of other banks.

The Appeal of Customer-Owned Models

A bank’s ethics and values matter to many people. The customer-owned model appeals to these values. It offers banking with a conscience.

These institutions include mutual banks and credit unions. They are owned by their members. Profits are reinvested to benefit you and your community.

This can mean better rates and lower fees. These banks serve over 5.4 million Australians.

They contribute about $30 million to communities annually. They also have a strong presence in regional Australia. This supports local jobs and financial access.

👉 Also see: How to Refinance a Home Loan in Australia

AU Expats—Unsure Which Refinancing Path is Best?

Who Are Small and Mid-Tier Lenders in Australia?

The lending landscape in Australia extends beyond the Big Four banks. Your options include non-major, customer-owned, non-bank, online lenders, and more.

Each of these small and medium-sized banks and lenders has its own structure and strengths.

The following table has some examples of these lenders.

Lender Category	Example Lenders
Non-Major Banks	Macquarie Bank Bendigo & Adelaide Bank Suncorp
Customer-Owned Banks	P&N Bank Teachers Mutual Bank Great Southern Bank
Non-Bank Lenders	Pepper Money La trobe Financial
Digital Banks / Online Lenders	Unloan, backed by Commonwealth Bank Up, a brand of Bendigo & Adelaide Bank

Read on below for more on each lender type.

Non-Major Banks

These are fully regulated banks, just like the Big Four, and are supervised by the Australian Prudential Regulation Authority (APRA).

As Authorised Deposit-taking Institutions (ADIs), deposits of up to $250,000 are protected by the Australian Government’s Financial Claims Scheme (FCS).

They often have a national presence but simply hold a smaller share of the total mortgage market.

Customer-Owned Banks

This group includes mutual banks and credit unions. Their defining feature is that they are owned entirely by their customers (members), not external shareholders.

Like other banks, they are regulated by APRA.

Because of their member-owned structure, profits are typically reinvested back into the institution to provide better rates and services. These banks collectively serve over 5.4 million Australians.

Non-Bank Lenders

These lenders do not accept customer deposits in the way that banks do.

Instead, they fund their loans through other means, such as wholesale markets or by bundling loans into investment products (a process called securitisation).

They are well-known for offering greater flexibility in their lending criteria and are regulated by the Australian Securities and Investments Commission (ASIC) to ensure responsible lending.

Digital Banks/Online Lenders

This group operates primarily or entirely online, which is a business model that helps keep their overheads low.

For customers, this lean structure often translates into more competitive interest rates.

These lenders focus heavily on technology to create a streamlined and user-friendly experience, from application through to the management of the loan.

They can be standalone companies or digital-only brands backed by larger, established banks.

👉 Also see: Best Mortgage Lenders for Refinancing in Australia

Key Considerations Before Switching

Switching can be attractive, but it’s a big financial decision. Approach it with careful research and a clear understanding of all factors.

Before committing, crunch the numbers, assess your eligibility, and see what your current bank offers. A thoughtful approach ensures your move is beneficial.

The Costs of Refinancing

Switching your home loan is not a free process. Weigh the upfront costs against the savings from a lower interest rate.

Common costs include discharge and application fees. There can also be valuation and registration fees.

A major cost to watch for is Lenders Mortgage Insurance (LMI). You may pay LMI again if your equity is under 20%. Always compare the comparison rate. It provides a more accurate representation of the loan’s cost.

👉 Learn more: How Much Does It Cost to Refinance a Home Loan?

The "Mortgage Prison" Trap

Obtaining approval from a new lender can be a big hurdle. Some become “mortgage prisoners”—unable to refinance despite having a good repayment history.

You may not pass a new lender’s stricter serviceability test for various reasons.

This can occur if your property’s value has decreased. It also happens if interest rates have risen. A change in your income or expenses can also affect you. This could prevent you from switching.

👉 Also see: Documents Required for Refinancing in Australia

Big Bank Retention Tactics

Your current bank does not want to lose you and may use aggressive tactics to retain customers. This has led to a rise in internal refinancing.

Banks have dedicated retention teams. They may offer you unadvertised, sharper interest rates. They can also offer cashback deals.

Always call your current lender before switching. You may get a competitive counter-offer to stay.

👉 Before deciding, check out:

How to Find the Right Small or Mid Tier Lender for Your Refinance

Finding the best lender requires a clear plan. It starts with understanding your own goals. Then you must compare what different lenders offer.

A methodical approach helps you narrow the choices. You can identify a lender that aligns with your needs. It should also align with your personal priorities.

Assess Your Priorities: First, think about what you want to achieve. Is your main goal the absolute lowest interest rate or debt consolidation? Or do you value great service and flexible features? Features can include an offset or redraw facility.
Compare Offers Holistically: Look beyond the advertised headline rate. The comparison rate is a more accurate measure. It includes many of the associated loan fees. Check for all potential upfront and ongoing charges. This helps you understand the true loan cost.
Consider a Mortgage Broker: Mortgage brokers can provide access to many lenders. This includes some you may not find yourself, including for a fast refinance. They are legally required to act in your best interest. They help you navigate options to find a suitable loan.

👉 For more clarity, see: When to Refinance Your Mortgage in Australia

FAQs about Refinancing to Small and Mid Tier Banks

Refinancing requires careful research. It also requires a clear view of your financial goals.

Be proactive in your journey. Scrutinise your current loan and explore alternatives. Negotiate freely. The competitive market puts you in a position of power.

Here are some FAQs about refinancing to small and mid tier banks in Australia to help you decide.

Is it safe to bank with a smaller ADI lender in Australia?

Yes. Small banks and credit unions are ADIs. They are regulated by APRA. Your deposits up to $250,000 are also protected. This is by the government’s Financial Claims Scheme.

Will I really save money by refinancing to a smaller bank?

It is highly possible. Smaller lenders often have competitive rates and low fees. You must calculate your net benefit. This should be after factoring in all refinancing costs.

👉 Also see: Will Refinancing Save Me Money?

What if my current bank offers to match a competitor's rate?

This is happening more often as banks fight to stay competitive. You should seriously consider their offer. Staying can save you the time, effort, and cost of switching.

👉 Also see: Repricing vs Refinancing Your Home Loan

Are non-bank lenders as safe as banks for a home loan?

Non-bank lenders are not ADIs. But for lending, they are regulated by ASIC. They must follow responsible lending laws. Your loan contract is a secure, legally binding agreement.

Your next step could be using online comparison tools. You can also consult with a trusted mortgage broker.

Alternatively, consider contacting a few smaller lenders directly. This will help you find a deal with significant savings. It can also lead to a more satisfying banking relationship.

AU Expats—Ready to Maximise Your Savings?

Ready to save with a better home loan but worried your expat status is a roadblock? Many Aussies abroad are unsure if they even qualify for the best refinance deals.
This uncertainty can be costly. Doubts about eligibility and navigating the process from overseas could stop you from saving thousands on your mortgage.
We specialise in removing these barriers. As expat finance experts, we find you the best deals and help you qualify, no matter where you live.
Check your refinance eligibility today

Key Takeaways

Yes, Aussies are leaving big banks while the market share of smaller lenders is growing significantly. ⬆️
Smaller banks offer better rates, superior customer service, and more flexible loan approval processes. ⬆️
Small lenders include non-major banks, customer-owned banks, non-bank lenders, and online-only operations. ⬆️
Before switching, consider all costs, eligibility hurdles, and your current bank’s potential retention offers. ⬆️
Find the right lender by assessing your goals, comparing offers holistically, and considering a mortgage broker. ⬆️
Smaller ADI banks are safe, refinancing can save money, and your current bank may match competitive offers. ⬆️

Aussies Turning to Small and Mid Tier Banks to Refinance

Are Aussies Really Leaving Big Banks for Refinancing?

Why Smaller and Mid-Tier Banks Are Gaining Traction for Refinancing