ADI vs Non‑ADI: Home Loan Options

What is an ADI?

An Authorised Deposit‑Taking Institution (ADI) is a bank, credit union or building society that is licensed by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959 to accept deposits and conduct banking business in Australia.

Why the ADI Label Matters

• Stricter prudential oversight; ADIs must meet APRA capital, liquidity and lending‑quality rules.
• $250 k deposit guarantee; Deposits are covered by the Federal Government’s Financial Claims Scheme (FCS) up to $250,000 per account‑holder, per ADI.
• Standardised credit assessment; Since November 2021 APRA requires ADIs to test new loans at three percentage points above the actual rate (the “serviceability buffer”).

Example ADI Home‑Loan Providers

Lender
Commonwealth Bank of Australia (CBA)
Bendigo & Adelaide Bank
Newcastle Permanent Building Society
Auswide Bank
Teachers Mutual Bank

Advantages of Borrowing from an ADI

• Government‑backed deposit safety up to $250 k.
• Often sharper headline rates thanks to low‑cost deposit funding.
• Broad product menus (offsets, package discounts, digital wallets).
• Perceived stability, helpful when bidding at auction or refinancing.

Disadvantages of ADIs

• 3 % serviceability buffer can shrink borrowing power, especially tough on first‑home buyers.
• Tighter policy for the self‑employed (e.g., two years’ tax returns, lower add‑backs).
• Longer turnaround times when volumes spike.

Example Non‑ADI (Non‑Bank) Home‑Loan Providers

Non‑ADI Lender
Pepper Money
Liberty Financial
Resimac
Firstmac
La Trobe Financial

Advantages of Borrowing from a Non‑ADI

• No mandatory 3 % buffer, many assess at 1–2 %, lifting maximum borrowing capacity.
• Flexible credit policy (alt‑doc loans, recent ABNs, higher debt‑to‑income ratios).
• Specialist niches e.g., SMSF property loans, construction for the self‑employed.

Disadvantages of Non‑ADIs

• Typically higher interest rates and fees because they rely on wholesale funding.
• No FCS deposit guarantee (they don’t take deposits).
• Smaller balance sheets can limit fixed‑rate or high‑LVR options.

Case Study: How Alex & Priya Bought Sooner with a Non‑ADI

Borrowers	Alex (graphic‑designer, PAYG) & Priya (freelance photographer, ABN 18 months)
Goal	Buy first home in Brisbane for $720 k with 10 % deposit
ADI outcome	Borrowing cap $640 k after 3 % buffer → fell short
Non‑ADI outcome	Liberty assessed at 1.5 % buffer + accepted one year of Priya’s income → borrowing cap $735 k
Result	Purchased a $715 k townhouse, variable rate 6.89 % p.a. (≈ 0.45 % higher than comparable ADI loan)
Trade‑off	Pay ~$165/month more in interest, but entered market 18 months earlier and avoided further price growth

Choosing Your Path

1. Start with a borrowing‑power comparison, model both ADI and non‑ADI scenarios.
2. Weigh cost vs. capacity: a lower rate is pointless if the loan size is too small.
3. Check product features (offsets, redraw, extra‑repayments).
4. Consider deposit security: if parking large cash buffers, an ADI’s FCS coverage may matter.
5. Get expert help: a broker familiar with both channels can match policy quirks to your situation.

Bottom Line

ADIs offer rock‑solid security and often sharper pricing, but their 3 % buffer can block first‑timers and newly self‑employed borrowers. Non‑ADIs fill that gap with flexible assessments, at the cost of slightly higher rates and no deposit guarantee. Understanding both options opens an alternate pathway into Australia’s property market.