Record low interest rates might be driving more young people into the property market but the cost for borrowers with small deposits is about to increase.
QBE this week began notifying lenders that premiums for lender’s mortgage insurance are about to rise from next month.
In a notification to mortgage brokers on Wednesday, Newcastle Permanent Building Society said that QBE was introducing across-the-board premium hikes of 4 per cent on all mortgages with loan-to value ratios above 80 per cent.
The Newcastle BS repricings, which take effect on 31 May, could deter some first home buyers from entering the market before the federal government reactivates the first home loan deposit scheme on 1 July.
Newcastle BS mortgage origination manager Michael Hopton advised brokers that the premium hikes would apply to loan applications in train, including pre-approvals subject to valuation and increases to existing policies approved on or after 31 May.
Loans unconditionally approved for LMI before the effective date (and pending settlement) will be unaffected but this would be conditional on there being no change to the loan amount or loan to valuation ratio prior to settlement.
The government has pledged to guarantee the LMI obligations of 10,000 new first home buyers through the scheme, which might mean first home buyers could take a raincheck on property purchases until the support becomes available.
Property values have soared across Australia this year and the LMI increases will magnify the costs for first home buyers.
Under the government scheme borrowers with a deposit of as little as 5 per cent on a property purchase can secure a home loan from 30 participating lenders after the government agrees to guarantee up to 15 per cent of the mortgaged debt.
Canstar director Steve Mickenbecker said he was not surprised that LMI providers such as QBE were hiking premiums ahead of rate increases.
“When rates are low the credit profile of borrowers might look good but that can change when rates start rising,” he said.
Mickenbecker said aspiring homeowners could step out of the market in June in the hope of securing a deposit guarantee from the government.
“If we see similar LMI increases across the lending industry pressure could come on the government to boost the number of guarantees available under the support scheme,” he said.