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Lenders Mortgage Insurance (LMI) can be a godsend for those wanting to get into market but can’t keep up with the pace of house price increases to save a 20 per cent deposit. So why aren’t mortgage brokers writing more LMI deals? LMI provider Helia unpacks what’s holding them back and why LMI can be a silver bullet
Back to basics
LMI allows home buyers to enter into a home loan with a less than 20 per cent deposit and can therefore be a suitable option to allow home buyers to enter the property market sooner.
LMI is a one-off payment that can be paid upfront upon settlement or capitalised into the total cost of the loan. It’s calculated based on the cost of the property and loan amount. It protects the lender in cases where the borrower is unable to make repayments or defaults on their mortgage.
According to Helia, LMI ensures that home buyers do not need to sacrifice extras because their deposit is less than 20 per cent and allows them to get onto the property ladder sooner than they would otherwise.
The recent research surveyed 256 mortgage brokers across Australia to find out their attitudes to LMI.
Despite the high property market environment and rising cost of living, Helia found that nearly three-quarters of respondents (74 per cent) said less than 20 per cent of their total business volume included LMI. Further, the report found that more than half (55 per cent) of brokers who completed the survey had less than 10 per cent of their business volume including LMI.
Just over a third of respondents (34 per cent) said they rarely recommended LMI to their clients and only 29 per cent said that they recommended LMI more than half of the time.
However, the findings show a disconnect between what brokers recommend and what home buyers might need to get into market sooner.
For example, Helia’s Home Buyer Sentiment Report 2023, conducted by CoreData in August 2023, found that 87 per cent of Australian first home buyers (FHB) said it was getting increasingly difficult to save for a 20 per cent deposit.
Greg McAweeney, chief commercial officer at Helia, commented: “Changes in the property market such as fluctuations in property prices, interest rates and housing supply can impact the demand for LMI.
“Our Home Buyer Sentiment Report 2023 highlighted that 60 per cent of home buyers agree that now is a good time to purchase property before prices increase further. With this as a backdrop, it is interesting to note that awareness of LMI remains suboptimal, with only 61 per cent of home buyers and refinancers indicating familiarity with it.”
Despite the advantages LMI can provide, concerns and misconceptions endure. Helia found that even for those who have heard of LMI, only two in three accurately identified LMI as an insurance to protect the lender and that it allows the buyer to purchase a property with less than a 20 per cent deposit (68 per cent).
Instead, FHBs resonated with statements such as ‘LMI sounds too expensive’, ‘I would only use LMI as a last resort’, and ‘I am not clear on what LMI can do for me’.
On top of this, the Mortgage Broker Research Report 2024 found that the biggest challenge for mortgage brokers was understanding the cost versus benefit of LMI (74 per cent of mortgage brokers).
However, Helia’s standard LMI premium rates have not increased for several years. In the last couple of years, it has also provided innovative solutions such as paying the LMI fee monthly (known as Monthly LMI) or receiving a 15 per cent discount when a family member pays the LMI fee at the time of settlement (known as Family Assistance).
Helia said that mortgage brokers were best positioned to bridge the gap for home owners, as 79 per cent of buyers said they were likely to use a mortgage broker to get a home loan.
Mr McAweeney acknowledged that this presents an opportunity for Helia to “enhance its messaging” to illustrate the advantages of LMI and work more closely with mortgage brokers to improve education of LMI to ensure it is integrated into discussions with clients as a viable pathway and choice for home buyers.
He said that mortgage brokers could also “boost their services by using the research insights to improve the customer experience and offer alternative pathway options for home buyers”.
“Understanding products more deeply, such as LMI, allows mortgage brokers to guide home buyers effectively through their home purchase journey,” Mr McAweeney said.
To help them do that, Helia has developed the ‘deposit comparison estimator’ tool, which allows brokers and aspiring home buyers to compare the overall costs of using LMI versus a variety of other deposit options (such as using the First Home Guarantee, buying with a guarantor, and saving for the full 20 per cent deposit). The estimator also provides a snapshot of future value and projects assumptions to 10, 20, and 30 years, which assists home buyers to consider their financial situation and make decisions with confidence.
A 7-step approach
Considering the knowledge gap that exists for clients and mortgage brokers, Helia has created a seven-step approach for mortgage brokers to use when discussing options with clients:
1. Educate
Empower home buyers with knowledge on LMI benefits for quicker market entry.
2. Position LMI
Present LMI as a viable option, enabling informed decisions.
3. Make comparisons
Provide cost benefits for deposit scenarios, aiding decision making.
4. Long-term vision
Highlight the enduring benefits of home ownership.
5. Offer resources
Dive into resources such as webinars and educational resources on Helia LMI products.
6. Explore choices
Present various mortgage options, with and without LMI, empowering home buyers to choose wisely based on their financial muscle and preferences.
7. Stay sharp
Stay in the loop with LMI policies and offerings from diverse lenders. Being on top of the game means providing current and accurate information.
Helia’s Mr McAweeney concluded: “The opportunity cost for mortgage brokers not presenting LMI as an option can lead to missed opportunities to secure business and potential lost revenue. By not offering it as an option, mortgage brokers risk alienating clients who might have otherwise been able to afford a mortgage with a smaller deposit and LMI. This could result in a smaller client base, less referrals, and a competitive disadvantage compared to their peers who are presenting LMI as an option.
“Additionally, best interest[s] duty does not always mean recommending the cheapest option for their client – the best option is addressing their needs and considering both their short-term and long-term goals.”
A WORD FROM HELIA
At Helia, we exist to accelerate financial wellbeing for home ownership, now and for the future. Our ongoing market and consumer research consistently highlights the crucial role of mortgage brokers in assisting home seekers in navigating the complexities of the home ownership process.
Given their pivotal position, mortgage brokers play a leading role in offering education and guidance on LMI, ensuring it is integrated into discussions as a viable pathway and ultimately a choice for home buyers.
Our Mortgage Broker Research Report 2024 reveals that 34 per cent of mortgage brokers rarely recommend LMI to their clients, with 29 per cent indicating they only do so half of the time.
To address this knowledge gap, we must simplify the understanding of LMI, presenting clear benefits versus costs, thereby empowering mortgage brokers to confidently recommend it earlier in their discussions with home buyers.
Greg McAweeney
Chief Commercial Officer
Helia
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