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STRUGGLING first home buyers battling rising house prices are getting pushed out of the market even further with hikes to compulsory insurance for those with small deposits.

Rises to lenders mortgage insurance (LMI) – which protects the mortgage lender not the borrower if the customer defaults – is the latest sting in the tail for borrowers entering the market.

LMI hits customers with a loan-to-value ratio of more than 80 per cent and has crept up since

the global financial crisis, costing customers thousands of dollars more when taking out a loan.

LMI rates have climbed from an average of 2.92 per cent to 4.37 per cent on the total loan sum.

On a $650,000 property with a five per cent deposit the LMI costs have risen by nearly $9000 from $18,000 to $27,000 over the past seven years.

Slamming the door on first home buyers

Industry experts say it’s making it tougher for entry-level buyers to crack into the market, as they continue to battle surging house prices and the banks’ toughening up around lending criteria in recent months.

Home Loan Experts’ managing director Otto Dargan said it was just another barrier for first-time buyers trying to buy their first home.

‘It’s already tough for first home buyers to enter the market with tighter lending criteria and higher property prices, increasing LMI is just another blow,” he said.

‘The biggest roadblock for first home buyers is the size of their deposit.”

He warns that borrowers who do pay LMI will pay interest on these costs as it’s rolled into the total home loan cost.

‘If you added $10,000 in LMI to your 30 year home loan at 4.15 per cent then you’d actually end up paying $17,499 with the additional interest,” Mr Dargan said.

Price of entering property market

Property prices in Sydney are up about 14 per cent in the past 12 months compared with Melbourne at 6.5 per cent, Brisbane 2 per cent and ???????-Adelaide one per cent.

But a Genworth spokesman said despite LMI increases it allowed first home buyers to make their dream of buying a home possible sooner.

‘Without LMI many first home buyers simply would not be able to get the finance to buy,” he said.

Westpac this week ended its longstanding agreement with the nation’s largest LMI provider, Genworth, and could provide a much needed shake-up to the mortgage insurance industry as more players enter the market.

Mortgage Choice figures show first home buyers continue to be sqeeuzed out of the market – in April this year 12 per cent of their loans were for first-time buyers compared to 23 per cent in April 2009.

LMI costs are not transferable too so if borrowers are wanting to refinance and have little equity in their home they will have to pay the cost all over again if they jump lenders.


Posted by Sophie Elsworth – News Limited Network on 23rd May, 2015