LMI a great option for first home buyers
Higher interest rates and inflation are making it difficult for first home buyers to raise a deposit, says Helia’s Home Buyer Sentiment Report. The LMI provider explains how it works with brokers to help clients climb the property ladderPublished 23 Oct 2023
LENDERS MORTGAGE INSURANCE company Helia has released its 2023 Home Buyer Sentiment Report, which reveals the stark truth about the challenges first home buyers face when purchasing property.
The report found that 78% of first home buyers are finding it difficult to save for a deposit, which impacts their path towards homeownership.
“This is being driven by many factors, including a lack of supply in some areas, high interest rates and inflation rates, and the flow-on effect from other parts of the economy,” says Helia chief commercial officer Greg McAweeney.
“As a result, more homebuyers are recognising the value of LMI and other pathways to overcome this deposit barrier and help them achieve homeownership.”
With inflation levels leading to a higher cost of living, McAweeney says many people have little room in their everyday budgets to save for a deposit, with 69% of homebuyers indicating they are finding it difficult to cover their living expenses.
“Additionally, the rising cost of purchasing a property is widening the gap between the amount needed to cover ongoing monthly loan repayments and the financial capacity of aspiring homebuyers, leading more people to review their options.”
Deposit sizes are falling
The Helia Home Buyer Sentiment Report shows that deposit sizes are shrinking year after year, with only 20% of first home buyers saving a 20% deposit in 2023, compared to 41% in 2019.
The research also shows that more than a third of first home buyers are proposing to save a deposit of between 5% and 9%, which falls short of the usual 20% deposit required by most lenders.
McAweeney says this decline in deposit sizes may force aspiring homebuyers to delay their decision to buy a home until
they have saved the full 20% deposit, which may take several years and contribute to longer periods of renting.
“However, our research shows first home buyers remain motivated by the long-term financial benefits of homeownership and are seeking opportunities to break the rental cycle and avoid rising rental costs, with 48% citing that rents are no longer affordable. This signals an addressable market of potential homebuyers who are looking at ways to overcome the deposit barrier.”
Awareness of alternative pathways and the role they can play in helping borrowers achieve homeownership is an important determinant of outcomes for aspiring first home buyers who may not have the full 20% deposit, says McAweeney.
“Our report shows first home buyers are considering other options, including financing at <80% LVR with help from lenders mortgage insurance, with 60% likely to use LMI to bridge the deposit gap.
“Other pathways include eligibility for support from various government schemes [50%]; rent to own [52%]; deposit gap loans [40%]; and the bank of mum and dad [30%].”
Partnering with mortgage brokers, aggregators to keep customers informed
McAweeney says that as a first contact point for many aspiring homebuyers, mortgage brokers have a “unique and vital” role to play in supporting, guiding and educating them on pathways to homeownership.
The Home Buyer Sentiment Report confirms that first home buyers are feeling overwhelmed, with 48% agreeing the homebuying journey is difficult and that they are confused about where to find trusted sources of information.
“This is where mortgage brokers can help cut through the complexity and unlock opportunities that may not otherwise have been considered by first home buyers,” says McAweeney.
“Mortgage brokers can help bridge the gap by providing homebuyers with a clear explanation of what LMI is, how much it costs, who it protects and how it could support homebuyers to purchase a home sooner with less than a 20% deposit.”
McAweeney says brokers can also highlight the benefits of all pathways to homeownership to ensure that homebuyers feel more confident in their decision-making.
First home buyers are seeking support throughout all stages of the homebuying process, the report reveals, with 41% saying a mortgage broker’s help in reviewing the home loan contract is one of the most valued forms of assistance they need.
Other key stages of support for FHBs include guidance on choosing the right loan for their needs (37%); help in negotiating the purchase with the vendor (34%); as well as assistance in applying for a loan (33%), determining how much they can borrow and afford (32%), and settling on the property (30%).
McAweeney says Helia takes the time to really understand its broker and aggregator partners and what they need to support their growth – setting the foundation for a strong partnership.
“Key for Helia is fostering a greater understanding about our value proposition not only for the industry but also for borrowers,” he says. “This is underpinned by our focus on providing quality educational resources for brokers to use with their clients around LMI.”
Helia’s role is to help brokers have confident discussions with clients and assist them in complying with their best interest duty by ensuring LMI is presented as an alternative pathway, rather than just a cost.
“We also support aggregators and lenders by participating in education webinars, conference attendance and sharing our research insights,” McAweeney says. “Many of these activities also provide CPD hours for brokers.”
He adds that Helia’s award-winning Deposit Comparison Estimator is a resource that can help aspiring homebuyers who have less than a 20% deposit to understand the options available to them. The estimator supports brokers in educating their clients on the potential benefits and consequences of the different options available and helping them consider the options that may suit their individual circumstances.Helia’s suite of resources for first home buyers includes:
McAweeney says Helia’s video series also includes a ‘What is LMI?’ video that helps homebuyers understand what LMI is, how much it costs, who it protects and how it can support homebuyers to purchase a home sooner with less than a 20% deposit.
“Our ‘Get Home Sooner’ video is aimed at homebuyers struggling to save a 20% deposit,” he says. “It showcases how homebuyers could buy a home, stop paying rent and build financial wellbeing.”
Feedback from mortgage brokers is that the videos help them articulate the benefits of LMI and debunk LMI myths when talking to clients, which enhances their discussions with borrowers.
The resources are available on Helia’s website: www.helia.com.au.
New option for homebuyers: pay LMI monthly
Helia has introduced the option for borrowers to pay the LMI fee monthly. McAweeney says this empowers homebuyers by giving them more flexibility around how they use their deposit, which can help them buy a home with less than a 20% deposit.
Rather than paying the LMI fee as a lump sum up front or having it capitalised into the home loan, which increases the amount they borrow, paying the fee monthly can also be beneficial as it can help buyers cover other significant upfront expenses associated with buying and settling into a new home, such as stamp duty, conveyancing costs and loan application fees.
“Helia is the only LMI provider offering monthly LMI,” says McAweeney.
“It is currently available through four Helia customers, with a number of
additional customers preparing to change their operational processes to offer monthly LMI over the next 12 months. We expect the take-up of monthly LMI to continue increasing in response to market demand.”
How does monthly LMI work?
The monthly LMI fee is payable each month until the loan-to-value ratio reaches a specified level determined by the lender.
The amount payable each month is fixed, unless there is a material change to the loan, for example an additional advance on the loan amount is taken.
The monthly fee is payable until the loan has been paid down to below the LVR determined by the lender, or until the loan is discharged.
Future developments
McAweeney says innovation remains a key focus for Helia, with Monthly Premium LMI, Family Assistance, SMSF LMI and the Deposit Comparison Estimator recently recognised by MPA’s sister publication Australian Broker in its 5-Star Mortgage Innovators awards for 2022 and 2023.
“Helia continues to focus on how we can best support our customers and provide more homebuyers with opportunities to access the property market,” he says. “Our approach is to perform detailed research utilising human-centred design techniques to ensure we create solutions based on both homebuyers’ and our customers’ needs.”
McAweeney says Helia will soon undertake detailed broker research to help determine what additional tools and resources it can develop to specifically support brokers in their conversations with homebuyers
You can access the resources here
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