Changes To Mortgage Insurance
What Is Mortgage Insurance?
Mortgage insurance (also known as mortgage guarantee) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer and is usually required if the buyer does not have in savings 20% of the purchase price plus costs.
Recent Change To 95% Investment Loans
Australia’s leading mortgage insurer, Genworth Financial, has reduced the maximum loan amount from 97% of the property value to 95%.
This may not sound like much, however it means that an investor who is buying a property for $500,000 would be required to have an additional $10,000 as a minimum deposit.
Which lenders have been affected?
All lenders that use Genworth Financial as their LMI provider have changed their policy to limit their maximum leverage level, banks it effects are known to be CBA, St Geroge, Bank Of Melbourne and Westpac.
Lenders that use another mortgage insurer are not affected, however many of them already have restrictive policies for 95% investment loans.
Can You Still Borrow 95% plus LMI?
Yes it is still possible to borrow 95% plus LMI to a maximum of 97% with a mortgage to purchase an investment property.
We can offer this by applying with lenders that do not use Genworth financial and who have less restrictive policies for investors. You may need to meet additional requirements such as equity in another property or genuine savings.
Are existing investment loans affected?
No, if you have a current investment loan which is insured by Genworth then there will be no changes.
However if you apply for a loan increase or to buy a second investment property then this is a new loan application and so current lending policies will apply. You will not be able to capitalise LMI over 95% of the property value.
Are home loans affected?
No, this policy does not apply for loans used to buy or refinance an owner occupied property.
Genworth will still consider normal home loan applications with a maximum loan amount of 95% of the property value with LMI capitalised to a maximum of 97%.
Why did Genworth make this change?
While Genworth has not confirmed the exact reasons for this change, we assume that Genworth has too high an exposure to high LVR investment loans and so has decided to pull back on this market.
It is understood that the mortgage insurers are increasingly looking at reducing their risk rather than being aggressive with their lending policies. Genworth has decided that investors who are borrowing the maximum amount possible are not a market that they want to pursue.