SPONSORED EDITORIAL -- Spread the word

Empower your customer service proposition through understanding the benefits of lenders' mortgage insurance.

Sponsored by Genworth

After suffering a sharp decline during the GFC, high loan-to-value ratio (LVR) products are starting to make a comeback in the Australian market. While the market is unlikely to return to the days of 100 per cent-plus loans, lenders are beginning to re-think their maximum LVRs.

According to recent data from RateCity, there were more than 650 no-deposit home loans on the market in mid 2008. By February 2010, however, no lenders offered 100 per cent home loans. But there are encouraging signs that lenders are again beginning to look at increasing their maximum LVRs.

HIGH LVR LENDING RETURNS

Last month, Adelaide Bank reintroduced lending up to 95 per cent LVR. The bank had offered 95 per cent LVRs to customers prior to the credit crunch but restricted its LVRs to 90 per cent in 2008.

Damian Percy, Adelaide Bank's general manager of third party mortgages, says funding has since opened up a little bit - which has enabled some lenders to expand their credit policies.

Homeloans, ANZ, Westpac and Mortgage House are among these lenders.

Earlier this month, Mortgage House said it would offer borrowers up to 105 per cent of a property's value, while ANZ raised its maximum LVR from 95 per cent to 97 per cent for existing customers. Similarly, Westpac raised its maximum LVR for new customers from 87 to 92 per cent.

The resurgence in higher LVR products could be attributed to increased interest from investors and also first home buyers looking to gain a foothold in the market.

But while higher LVRs are staging a comeback, there is a danger that these much-needed products are falling short at the consumer level due to a lack of understanding of the value of lenders' mortgage insurance (LMI).

On occasions it has proved hard to shake the perception that LMI is a ‘necessary evil' among some brokers - and this misconception could be costing them business and holding many prospective buyers back from the market unnecessarily.

IMPORTANCE OF LMI

In a market where affordability is becoming an increasing concern, a growing number of borrowers are finding that the traditional 20 per deposit is well beyond their reach.

For many this will mean missing out on home ownership for years while they struggle to save for a deposit, however with a clearer understanding of the benefits, costs and opportunities associated with LMI it could be a very different story. So how can brokers play a role in better educating their borrowers and what impact will this have?

According to Genworth Financial's chief commercial officer Bridget Sakr, brokers are in a strong position to provide borrowers with a better understanding of the benefits of LMI.

"Most borrowers will look to their broker for guidance on their mortgage requirements and so there is a real opportunity for brokers to help educate their clients," she says.

Ms Sakr believes that highlighting the opportunity cost of LMI can be a powerful influence on borrowers.

"Some borrowers just don't realise how far the property market could move in the two or three years it takes to save a deposit. Brokers are in the perfect position to articulate this missed opportunity to their clients."

But as well as a lack of understanding about missed opportunities in the property market, Ms Sakr says there is also confusion about the costs associated with LMI.

"There's definitely some misunderstanding among borrows as to how much LMI costs and how they need to pay for it. What many borrowers don't realise is that many lenders will allow borrowers to capitalise the cost of their LMI onto the loan, making it part of their monthly mortgage repayments and minimising the impact on the borrower's cash flow."

Ms Sakr says that brokers are ideally positioned to clarify many of the misconceptions about LMI and explain how it can be a powerful tool for enabling home ownership rather than a hindrance.

"Most borrowers have some understanding of LMI but there's definitely confusion over exactly how it works. Brokers who are upfront with their clients usually find it easier to address concerns."

WHERE TO FIND OUT MORE

Genworth has a range of channels through which brokers can learn more about LMI.

"The most obvious is the Genworth website," says Ms Sakr. "The broker centre on the website includes a servicing calculator, location guide, and LMI premium estimator, and the very popular Genworth ‘Buy Now or Wait and Save Tool'.

"This tool is a fast and effective way to determine how much LMI will cost with a given deposit, the property value concerned, and the other variables that need to be taken into consideration when purchasing a property.

"There are also tips for brokers on LMI, and borrower perspectives on brokers; always of interest to brokers in particular," she says.

In the coming months, Genworth will be providing more tools and resources based on the great feedback we received from last month's The Adviser broker roundtable.

Visit genworth.com.au to find out more.