Why aren’t more brokers recommending LMI?

Lenders mortgage insurance (LMI) enables home buyers to buy a home or investment property without having a 20 per cent deposit.

However, after commissioning CoreData to survey 256 mortgage brokers from across Australia in late 2023, Helia found that LMI is not frequently recommended by brokers.

According to the research, nearly three-quarters of brokers (74 per cent) said that LMI accounts for less than 20 per cent of their business dealings.

Moreover, 34 per cent stated that they “rarely” recommend LMI to their clients – while 29 per cent said that they did so more than half of the time.

Approximately 85 per cent of respondents acknowledged that LMI could help buyers get into the property market sooner and a similar proportion said it would help buyers purchase a property without a 20 per cent deposit.

However, the research showed that the most significant challenge for the majority of brokers (74 per cent) and their clients was seeing the cost of the product versus the benefit of having it.

For example, 53 per cent positioned LMI as an “opportunity” for buyers while 32 per cent said it was a “cost”.

This was followed closely by “a lack of understanding” of whom LMI protects (50 per cent) and access to education and resources (21 per cent).

Helia’s research showed that brokers are most likely to recommend LMI to first home buyers (FHBs) who are lacking a 20 per cent upfront deposit on their desired home – but found that there was also a general lack of understanding among FHBs when it comes to LMI.

More than two-thirds (67 per cent) of respondents suggested that they would benefit from estimator and calculator tools to effectively compare to the cost benefits of LMI for their clients, with 77 per cent stating that this would be most beneficial on aggregator websites.

Nearly 60 per cent suggested fact sheets would be also be helpful.

Given the findings, the LMI provider has said that there is a clear need for better education on the benefits of LMI, which “can enable [home buyers] to enter the market sooner, and buy the home they love with the deposit they have available now”.

“The research highlights the critical role of mortgage brokers in building home buyers’ understanding of the options and pathways available to them, including LMI,” said Greg McAweeney, chief commercial officer at Helia.

“As trusted advisers, mortgage brokers can help bridge the knowledge gap by providing a clear explanation of LMI and how it can benefit home buyers to get into their home sooner.”

The chief executive of the MFAA, Anja Pannek, added that the report “reinforces the crucial role mortgage brokers play in bringing choice and competition to the market through identifying products that meet their needs and circumstances, including LMI”.

“This research highlights how important mortgage brokers are ensuring prospective home buyers are aware of all their options, including when LMI can be the right choice,” Ms Pannek said.

“Mortgage brokers are a trusted source of information for home buyers and are in a position to explain how LMI works as they do all options for buying a home.

“We know that mortgage and finance brokers increase both competition and choice for home buyers through identifying products that meet their specific needs. The research highlights that LMI could be part of this choice Australians have when it comes to securing a home loan, and it’s something they should know about.”

[Related: Snakes and the property ladder]