How LMI is helping investors get ahead without the wait

Q. What are the key advantages of using LMI for clients looking to invest in higher-growth suburbs or purchase higher-value properties?

With as little as a 5 per cent deposit (plus additional costs), LMI can accelerate entry into property ownership, potentially allowing buyers to secure a home up to nine years sooner.*

Earlier entry means potential earlier access to equity growth that, in many cases, may outweigh the upfront cost of LMI over time, subject to market conditions.

LMI also allows home buyers to consider higher-quality or better-located properties, those with stronger long-term growth prospects or higher rental yields.

Q. Why should home buyers consider using LMI now?

According to Cotality, we’re currently in a unique convergence of favourable conditions in the housing market with softening interest rates, increased lender competition, and slower house price growth compared to recent years.

Arguably, these market conditions represent a window of opportunity for home buyers to act now, while these conditions are favourable.

However, this window may not last long. ANZ’s CoreLogic report forecasts that demand is expected to rise, fuelled by population growth, a persistent undersupply of housing, and a resurgence in investor activity. These pressures are expected to drive prices higher in the near future. Acting now may allow prospective home buyers to enter the market before prices rise further.

In this environment, LMI may be the difference between entering the market now or potentially risk being priced out.

Helia’s recent Home Buyer Sentiment Report found that nearly two in three home buyers would prefer to pay for LMI to be able to get into their property sooner, rather than continue saving for a larger deposit.

Q. Why do you think LMI is a strategic enabler for rentvestors and property investors?

Property investors are often more experienced and financially ready and they see property as a vehicle to build long-term wealth. They can use LMI to support their goals by enabling them to grow their portfolio, upgrade properties, and target capital growth in higher-value suburbs.

In some cases, LMI may be claimed as a tax deduction, potentially making it a more cost-effective strategy for investors.

For rentvestors, LMI allows them to enter the market sooner without compromising their lifestyle. They are able to rent where they love to live (close to work, family, or friends) and buy in a more affordable suburb with strong rental demand and growth potential. And, by purchasing earlier, they can start building equity and may earn an extra income through rent.

Q. How and when should brokers introduce LMI into conversations with clients?

LMI should be positioned early in conversations. Based on our research, many first home buyers and aspiring investors do not realise that they can get into the property market with a smaller deposit, thinking that they have to save the full 20 per cent deposit to be able to make a move. By raising LMI earlier, brokers position themselves as educators and problem-solvers, helping clients see what’s possible now.

Q. Can LMI be used as a value-add strategy to build longer-term client relationships and repeat business?

Yes, LMI provides brokers with the opportunity to help clients move on their investment goals sooner and potentially start building equity earlier, if favourable market conditions persist.

By helping clients access better-performing properties or act in favourable market conditions, brokers play a pivotal role in their wealth-building journey. As their equity grows and/or their needs evolve, whether upgrading, refinancing, or expanding a portfolio, clients are more likely to return to the broker who helped unlock their first property.

LMI is more than a pathway to property ownership, it helps position the broker as a trusted partner in their client’s property journey.

Q. What are some of the biggest misconceptions that investors have about LMI?

One of the most common misconceptions is that LMI is only a benefit to the lender. For home buyers, LMI plays a key role in unlocking earlier access to the property market, which may allow them to build equity sooner.

On average, Helia’s experience is that home buyers who have used its lenders mortgage insurance (LMI):

• Entered the property market up to nine years sooner.*

• Grew their equity by an additional $107,000 within five years.**

• Are financially ahead after five years (80 per cent of home buyers).**

Another misconception is that LMI is unaffordable. The cost of LMI can often be capitalised into the loan amount and repaid over the life of the loan rather than a separate fee that is paid upfront. Home buyers should also be aware that the cost of LMI varies depending on the deposit size and loan amount and many lenders offer competitive options to help manage these costs, but generally is 1–2 per cent of the loan. For investors, the cost of LMI may be tax-deductible.

Finally, some home buyers aren’t aware that LMI is compatible with investment strategies like rentvesting or building a property investment portfolio. Understanding how to use LMI strategically can open up opportunities that many assume are out of reach.

Brokers are well-positioned to reframe the LMI conversation by helping clients leverage it to invest sooner, build equity faster, and make investment goals a reality.

*Helia: internal data analysis, LMI data from 2010 to 2023.

** This outcome is based on Helia internal data for properties purchased using Helia’s LMI between 2014 to 2019 across all Australian States and Territories. The average additional equity growth is the increase in the value of the portfolio over a 5-year period following purchase.

Disclaimer: Lenders Mortgage Insurance (LMI) is an insurance to protect the lender/credit provider, not the home buyers and cannot be provided directly to home buyers. Eligibility criteria, terms, and conditions apply. The information contained in this article is general information. It does not constitute legal, tax, credit or financial advice, and is not tailored to Home Buyers specific circumstances. Home Buyers should consider their own personal circumstances and seek advice from professional advisers before making any decisions that may impact their financial position. Any references to reports or data are provided for general information only and may not apply to your circumstances. Helia Insurance Pty Limited’s (‘Helia’) does not provide or engage in credit activities, as a credit provider, except in relation to limited credit activities engaged by it as an assignee in relation to providing lender’s mortgage insurance (LMI) products or as a credit provider under the doctrine of subrogation in relation to providing LMI products. The information provided in this article does not refer to a credit contract with any particular lender/credit provider.