No property price crash, but QBE lenders mortgage insurance (LMI) premiums on the rise

The QBE Group has raised its lenders mortgage insurance (LMI) premiums by 9% this year.

Despite falling mortgage default rates, its chief John Neal, told a media briefing yesterday that QBE anticipated more volatility in the housing market in years to come.

‘‘Our assumptions are not that there’s going to be a housing price crash in Australia,”  Neal advised.

“But... if you look out beyond certainly the next two to three years, there’s a little bit more volatility. So hence adjusting the prices now for products that will actually be in force right the way through to 2023 to 2025,’’ Australian Broker Online reported.

QBE and Genworth enjoy 75% of the market.

‘‘When someone pays us a premium in 2013, we think the life of the policy is between nine and ten years…So you’re trying to look forward into the market place and make sure you’ve charged the right premium today over quite an extended period.’’

Last month Property Observer noted borrowers who don’t have a 20% deposit will be forced to pay higher lenders mortgage insurance (LMI) premiums following the two dominant providers.

LMI is a one-off premium that protects lenders if a borrower defaults on their home loan - if the property sells at a loss, the lender can make a claim against its LMI provider for the shortfall.

LMI can added thousands of dollars to the cost of buying a home and is particularly an issue for first-home buyers given the 20% deposit requirement.

Calculations using the Genworth LMI premium estimator show that a first-home buyer borrowing 95% on a house valued at $500,000 (so a $25,000 deposit) would be required to pay an LMI premium of close to $16,000 on a 30 year variable-rate loan.

A 10% deposit would reduce the premium to just under $8,000.