One of Australia’s largest banks, Westpac, recently announced that it has ended its long-standing agreement with Genworth Financial Mortgage Insurance (Genworth) to provide Lenders Mortgage Insurance (LMI).
LMI is a one off premium payable when borrowing more than 80% of the property value, otherwise known as the Loan to Value Ratio (LVR).
Under the new agreement, all new Westpac home loans approved from May with an LVR of more than 90% will be insured by Bermuda-based company Arch Capital Group, while 80% to 90% LVR mortgages will continue to be covered by Westpac’s insurance arm.
Mortgage insurance can be really expensive and Australians don’t really shop around by comparing premiums, mainly because lenders don’t advertise them to the general public!
Here’s why we think this Westpac and Arch Capital deal will shake up the cost of mortgage insurance industry-wide.
More competition means more competitive LMI premium rates
Currently, the Australian mortgage insurance market is dominated by Genworth and QBE.
Although there are other LMI providers, they are much smaller and some are owned by the lenders they insure. In addition to this, the lenders that have their own LMI provider are often underwritten by Genworth or QBE at a wholesale level or the lender only self insures with low risk loans.
Genworth is the market leader by far, with commercial relationships with over 100 lenders across Australia and 9.5% of its new insurance written with Westpac alone.
The introduction of Arch Capital to the LMI space means more competition, so lower mortgage insurance premiums for people wanting to borrow over 80% of the property value may be just around the corner!
More insurance policy diversity
Because Genworth and QBE control much of the LMI space, their insurance policies are quite similar. That means if both of them decline your home loan application then your choice of lenders is severely diminished.
Although we don’t currently know exactly the make-up of Arch Capital’s insurance policy, having another mortgage insurer diluting the Genworth/QBE duopoly in Australia will give mortgage brokers a greater selection of LMI providers to choose from.
That means a greater opportunity to get tough home loans approved.
Can’t wait for Arch Capital to shake LMI up in Australia?
There are lenders out there right now that have a delegated underwriting authority which means flexible credit policies and faster approvals. A good mortgage broker knows who these lenders are!
Why did Westpac end its agreement with Genworth?
Bottom line is, we don’t know.
Although they’ve refused to provide comment on the reasons behind the new deal, a spokesperson from Westpac told Home Loan Experts that, “the only change our customers will experience is a reduction in LMI premiums.”
What is Arch Capital Group?
Established and operating as Risk Capital Holdings in the mid-90s, Arch Capital started its underwriting (insurance) business in 2001 and currently provides insurance and reinsurance in Bermuda, the US, Canada, Europe, Australia and South Africa.
Apart from mortgage insurance, the company also writes specialty lines of property and casualty insurance.
As at 31 December 2014, Arch Capital has approximately $7.03 billion in capital.
Can I get a low LMI premium now?
Although any possible drop to LMI premiums will not happen till after May, you can still get a great deal on your LMI premium by speaking to a mortgage broker.
The reason is that LMI providers have very different premiums depending on the:
- Type of loan (low doc or standard home loan)
- Type of borrower you are (first home buyer or other borrowers)
- LVR (90%, 95% or more)
- Loan amount
You can even get a reduced LMI premium or even have the cost waived completely if you meet certain eligibility criteria.
Call us today on 1300 889 743 or complete our free assessment form and discover how we can get you a great deal on LMI.