Brokers can workshop six different scenarios
Saving a sufficient deposit remains a significant hurdle for attaining homeownership, and a lenders mortgage insurance provider is helping buyers and brokers identify their opportunities to buy.
In a normal residential lending scenario where the deposit saved is less than 20% of the purchase price, lenders mortgage insurance (LMI) is required.
Helia (formerly Genworth Mortgage Insurance Australia), an LMI provider, has developed an online tool to help homebuyers and brokers weigh up six different strategies and decide which option suits their situation best.
The Helia deposit comparison estimator tool allows users to plug in information for a property, such as estimated purchase price, current deposit saved, rental outgoings, regular savings and estimated interest rate.
It allows users to decide whether to wait and save a full 20% deposit, or “buy now”, for which there are five different options. The options that can be weighed up are to buy with a monthly LMI fee, buy with LMI capitalised into the loan amount, buy with family assistance (discount where LMI fee is paid upfront by a family member), buy with a guarantor, or buy with the First Home Guarantee Scheme.
Helia chief commercial officer – LMI Greg McAweeney (pictured above) acknowledged that many people wanting to buy a home save their money for some time.
The comparison estimator tool is designed to lay out the options transparently for home buyers and brokers (as well as banks), who are their advisers along the home loan journey.
“The more that brokers are aware of the tool and [use it] in Best Interests Duty to explain the different options for a potential borrower, they can educate the homebuyer,” McAweeney said.
Monthly LMI proving popular
In response to specific scenarios that are popular and assist homebuyers, McAweeney said that subject to bank approval, brokers are increasingly considering the monthly LMI.
For example, where a loan-to-value ratio (LVR) requires LMI, a normal capitalised LMI is added to the loan balance and repaid over the loan term (e.g. 25 or 30 years).
Although house prices have recently declined, McAweeney said that in a market where house prices were growing, borrowers had the opportunity to refinance.
“If the LVR is at 85% [for example] and [a borrower] has house price appreciation or comes into some money and pays off their loan, the LVR might dip below 80% ... then they can go back to the bank and ask to refinance the mortgage,” he said. “As it’s a monthly premium, [they] stop paying the LMI straight away.”
Under a capitalised LMI, where the LVR falls below 80%, borrowers are able to receive a refund where the loan is refinanced, but the refund is generally less, McAweeney said.
“If it is likely that the LVR is going to get below 80% in two to four years, [the borrower] is probably better off with the monthly LMI.”
McAweeney noted that the monthly LMI option required a change to bank systems, meaning that checks had to be made with the respective bank before proceeding.
LMI helps borrowers get into the market sooner
While no one could accurately predict the bottom of the property market, McAweeney said that LMI was useful for borrowers who were in a sound financial position and wanted to take advantage of future market growth.
“We’re in this converse situation at the moment where house prices have come down. If you’re a first-home buyer and have been waiting to get into the market (and trying to save a deposit and are struggling) and are seeing house prices coming down, you might think ‘it’s my opportunity to get in’,” McAweeney said. “On the other side of that coin, is interest rates are much higher, so your ability to service that loan is more challenged.”
Due to fundamentals of inbound migration and interest rates appearing to be settling (possibly one more interest rate rise), along with higher rental yields, McAweeney said there was an opportunity for investors to re-enter the market.
“As long as unemployment stays where it is, I think we’ll start to see some confidence come back into the markets, but it might not be until the end of the year,” McAweeney said.
Looking at the longer-term fundamentals of the market, the benefits of using a calculator such as Helia’s is that borrowers and brokers can make the decision of whether to enter the market now, and benefit from long-term appreciation, he said.
As one of three main providers of LMI in Australia, Helia provides a range of LMI options to help home buyers access homeownership sooner.
Where an LVR is 85% (or for certain professions), McAweeney said that some banks, such as customer-owned banks, were willing to waive the LMI requirement.
“Generally if the LVR is above 80% (or at least above 85%), banks will require the borrower to have LMI,” he said.
