Lenders' mortgage insurance still important despite home guarantee scheme expansion
The lenders’ mortgage insurance sector will continue to play a crucial role in the housing market, despite expanded New Home Guarantee Schemes, says a leading provider.
Within the Federal Budget released on Tuesday, the Government expanded the home guarantee scheme, with 50,000 guarantees now available for eligible homebuyers who don’t have the standard 20% deposit required by lenders.
The scheme allows eligible purchasers to buy or build a new home with a 5% deposit (2% deposit for single parents under the Family Home Guarantee Scheme). The remaining 15% is guaranteed by the National Housing Finance and Investment Corporation, removing the requirement for LMI.
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A spokesperson for LMI provider Genworth said first-home buyers made up around one third of its business, consistent with the LMI industry.
As saving a deposit was increasingly challenging for prospective first-home buyers, LMI continued to be a popular strategy for first-home buyers needing to “bridge the deposit gap”, enabling them to enter the market.
The schemes were a government-funded option for a proportion of people who would potentially have used LMI to purchase a home sooner, the Genworth spokesperson said. In response to how the expanded schemes affected the LMI sector, Genworth said there was a potential risk.
“Whilst we remain supportive of initiatives seeking to facilitate earlier access to home ownership, we are mindful of unintended consequences that the continued expansion of the scheme could have on the ongoing health of the successful LMI sector that is currently providing an important avenue for accelerated home ownership,” the Genworth spokesperson said.
Genworth acknowledged that key factors driving demand for LMI across Australia, particularly in capital cities, were likely to persist.
The New Home Guarantee Scheme applied price caps for capital cities and regional areas by state, and income caps ($125,000 taxable income per annum for single applicants, $200,000 per annum for couples), meaning not all home buyers would meet the criteria.
“Whilst Genworth supports initiatives aligned to our purpose of accelerating financial wellbeing through homeownership, the LMI sector will continue to play a crucial role in the housing market, especially for Australians who are unable to access the scheme due to its property cost and income cap requirements,” the Genworth spokesperson said.
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In a statement on the expansion of the home guarantee scheme, the Insurance Council of Australia (ICA) said the insurance sector “remained supportive” of the scheme, provided it didn’t further stimulate the property market or operate in a way that impacted on the viability of a well-functioning LMI market.
“The importance of LMI was reaffirmed by last year’s independent statutory review of the operation of the National Housing Finance and Investment Corporation Act, which recommended potential impacts on the viability of the LMI sector should be carefully considered if changes to the number of guarantees offered or eligibility criteria were contemplated,” the ICA statement said.
The Insurance Council and its members who offered LMI remained concerned about the continued expansion of the scheme, which removed the need for eligible borrowers to have LMI.
By displacing a proportion of the LMI market, the cost of providing LMI to borrowers who did not access the scheme was potentially impacted.
Insurance Council of Australia CEO Andrew Hall said lenders’ mortgage insurance provided creditworthy borrowers without a substantial deposit with a “timely and cost-effective” way to access home loans.
“Since the post-war period, LMI has played a crucial role in supporting prudent high loan-to-value lending in Australia,” Hall said.
In establishing the scheme, he was pleased to see the government had acknowledged the value of the LMI sector and its role in the housing market.
“The insurance sector supports initiatives that improve access to home ownership, however it’s important that unintended consequences are carefully considered and that policy settings support the ongoing health of the successful LMI sector,” Hall said.
