Big jump in LMI costs

QBE has raised the price of mortgage insurance by 9 per cent this year, citing the long-term risk of volatility in the Australian property market.

QBE has raised the price of mortgage insurance by 9 per cent this year, citing the long-term risk of volatility in the Australian property market.

The sharp increase in mortgage insurance, which can add thousands of dollars to the cost of buying a home, comes despite falling mortgage defaults, as borrowers are cushioned by low interest rates.

Lenders' mortgage insurance (LMI) protects banks against losses from soured home loans.

In a sign of the strong profits being made in the local industry, QBE said on Tuesday that its Australian LMI business had pushed through price rises of 9 per cent this year.

Chief executive John Neal explained the increase by saying LMI was a long-term product and QBE expected slightly more volatility in the housing market in the next two to three years.

In Australia, QBE and US company Genworth control about 75 per cent of the market for LMI.

Mr Neal said QBE's pricing was similar to Genworth's - and it reflected long-term trends. "When someone pays us a premium in 2013, we think the life of the policy is between nine and 10 years," he said.

US-listed Genworth is planning to float 40 per cent of its Australian mortgages insurance arm later this year or early next year.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles