The Housing Industry Association has criticised the high cost to consumers and lack of competition within the lenders mortgage insurance market.
“We believe that the inquiry should examine pricing and competition within the LMI market as it lacks a competitive number of suppliers,” said HIA in its submission to the Financial Systems Inquiry.
The cost of the LMI premium can be substantial compared to the size of the loan – in the case of larger home prices involving high LVRs, the LMI premium can amount to almost 5% of the loan value, said HIA.
“The burden of the LMI premium is best captured by estimating the additional payments that result over the lifetime of the mortgage resulting from the LMI being absorbed into the mortgage principal.”
HIA gave an example of the “considerable” increase in mortgage repayments arising from LMI for a 30 year mortgage with 90% LVR at a discounted variable mortgage rate of 5.4%. Total repayments rise by over $6,000 for a $250,000 home and $40,000 on a $1m home.
To combat lack of insurer competition – the LMI market is dominated by Genworth and QBE – and significant prices for consumers, the inquiry should investigate and consider recommending a government-backed mortgage insurance scheme similar to that available in Canada, said HIA.
The Finance Brokers Association of Australia also believes there is a need for greater transparency and disclosure on behalf of LMI insurers and lenders.
FBAA said there are many issues surrounding LMI, such as consumers not being able to transfer their paid-for LMI, and not being provided with LMI product disclosure statements, including any details regarding any commissions payable to the lender.
Consumers are also not provided with the option to choose which LMI insurer would provide the best rate for their loan, so LMI rates and premiums are not standardised throughout the country, FBAA said.
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