Coalition’s changes to LMI mortgages rules could save first-home buyers up to $2.5k a year, new modelling finds

First-home buyers who don’t have access to the bank of mum and dad could save up to $2500 annually on their mortgage payments through the Coalition’s push to lower borrowing requirements for first-home owners. In an election bid to woo first-home buyers, a newly-elected Dutton government would call on banks to view loans taken out with lenders mortgage insurance (LMI) to be given the same risk-weighting as parental guarantees, which would reduce the loan-to-value-ratio (LVR) to 80 per cent, thereby allowing the borrower to access a reduced interest rate. LMI is generally used by borrowers who are not able to obtain a 20 per cent deposit on a home, and can either be paid as a lump sum at the beginning of the contract or as instalments. Modelling done by industry body the Insurance Council Australia (ICA) found mortgages taken out with LMI and on a LVR between 90 to 95 per cent incurred an interest rate 1.12 per cent higher, or a median rate of 1.15 per cent higher, than people with an LVR of 80 per cent. However, under the Coalition’s proposed changes, borrowers with a $500,000 mortgage who require LMI could save between $1000 to $2500 a year. This would be done by reforming the Australian Prudential Regulation Authority’s (APRA) statement of expectations to allow an LMI-backed loan to be treated as the same as other forms of guarantees. “This would ensure more equal treatment for first-home buyers accessing different but similarly effective guarantee/insurance tools,” said the ICA modelling, which is set to be released on Tuesday. The Coalition’s housing affordability housing spokesman Andrew Bragg said the current settings were penalising aspirational homebuyers who didn’t have access to help from their families. “Labor is letting first-home owners with parental support get a better deal than Australians using lenders mortgage insurance,” he said. “This is punitive for Australians without access to the bank of mum and dad.” Senator Bragg said the Coalition would make mortgages cheaper for Australians looking to get into the housing market. “Mortgages will be cheaper for first-home owners under the Coalition as we will ensure mortgages with LMI are treated similarly to parental guarantees,” he said. “This will cut the cost of mortgage payments for first-home buyers.” ICA chief executive Andrew Hall backed the Coalition’s plan to ease lending policy and said it would make “owning a home easier for more Australians”. “With house prices soaring, saving a 20 per cent deposit is tough. LMI offers a fair way for creditworthy buyers who can’t draw on the ‘bank of mum and dad’ to get loans without a huge deposit,” he said. “Unlike other guarantees, LMI is available to everyone, not just those with wealthy parents or who qualify for government schemes like the Home Guarantee Scheme (HGS). “Treating LMI-backed loans the same as other guarantees could lower borrowing costs for first-home buyers.” Peter Dutton has also pledged to reduce the serviceability buffer, which forces borrowers to prove they can continue making repayments at an interest rate 3 per cent above the current one. The rate has remained unchanged since the Covid-19 pandemic when the cash rate was at an all-time low of 0.1 per cent, however the Coalition argues the buffer unfairly restricts young Australians from obtaining financing amid successive interest rate hikes. Coalition spokesperson for housing Michael Sukkar has argued the rate should change with market conditions, however the regulatory policy should be changed to ensure it “considers access to home ownership and first-time buyers”. “It’s now 3 per cent - you can understand why it was raised to 3 per cent in (2021) when, when the cash rate went to point one, do we seriously think that the serviceability buffer shouldn’t reflect the current economic circumstances?” he told 2CC last week. “So we’re going to work with APRA through that statement of expectations to do that where the serviceability buffer ends up will ultimately be a decision for APRA.”