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Many first home buyers may not realise their property ambitions because of brokers’ reluctance to facilitate lender's mortgage insurance (LMI).
According to Frank Paratore, head of aggregation group Ballast, many brokers lack the ability to effectively present and sell the LMI proposition to clients, and therefore seek perceived easier alternatives.
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“I believe some brokers don’t have the confidence to deal with the issues that come with LMI,” he told The Adviser.
Mr Paratore says the challenge of LMI is that it is a dual process. A broker needs to secure two approvals – the loan itself and the LMI approval from the insurer, as some lenders don’t have the ability to approve mortgage insurance.
“And there are many cases where the bank will say yes on the loan and the insurer won’t accept the LMI,” he said.
Speaking to The Adviser, Steve Marshall from The Loan Arranger admitted he seeks alternatives to writing loans that involve LMI.
“If they have to go to LMI, I try to avoid it by looking for any other options,” he said.
“Generally, if a client doesn’t have a sufficient deposit saved, I suggest the only way out is through a guarantee using a parent."
Similarly, Theo Chambers from Shore Financial said he tries to steer his clients towards family guarantees in order to save them from the costly insurance.
“I always suggest a family guarantee option. Many first home buyers don’t really know it is an option, but it’s something that can really help them out and save them money,” he said.
“Of all the first home buyers I see, at least 50 per cent use a family guarantee and then about 25 per cent get a gift from their family.”
Despite the reluctance, Mr Paratore believes brokers should look at LMI as a positive tool that enables many borrowers to enter the property market much earlier than they otherwise could.
"If they look at how many borrowers over the years have been able to buy a home because of LMI, there are a lot more people who are sitting in a house with a mortgage because of the insurance," he said.
Mr Paratore said LMI can save borrowers money in the long run and it is short sighted to see the fee as an overall negative.
"I understand that there is a fee to get in and no one wants to pay a fee, whether it’s a dollar or $2,000, but what they need to remember is that the real estate market, as a general rule, is probably doubling in value in a lot of suburbs every seven to 10 years," he said.
According to Mr Paratore, brokers and borrowers often look at LMI from the “glass half empty perspective, rather than the glass half full”.
"If the market is dictating that borrowers are saving less, how can they get into a property unless you've got people like the mortgage insurers who are prepared to take the risk?" he said.
