Big jump in LMI costs
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.
Frequently Asked Questions about this Article…
Lenders' mortgage insurance (LMI) is insurance that protects banks and lenders against losses if a home loan goes sour. For home buyers, LMI is usually paid as a premium and can add thousands of dollars to the overall cost of buying a home.
QBE said it lifted mortgage insurance prices by 9% this year because LMI is a long‑term product and the company expects slightly more volatility in the Australian housing market over the next two to three years, so pricing reflects those long-term risk trends.
No. The article notes mortgage defaults have been falling, helped by low interest rates cushioning borrowers. QBE's 9% price rise reflects expectations of future housing market volatility and long-term pricing assumptions rather than current default increases.
According to the article, QBE and US‑based Genworth together control about 75% of the Australian lenders' mortgage insurance market.
Yes. QBE’s chief executive John Neal said QBE’s pricing is similar to Genworth’s and that both reflect long‑term trends in the LMI business.
QBE estimates the life of an LMI policy is about nine to ten years when a premium is paid, based on the company’s long‑term view of the product.
The article states that US‑listed Genworth is planning to float 40% of its Australian mortgage insurance arm later this year or in early next year.
Investors should watch LMI pricing trends (like QBE’s recent 9% rise), indicators of housing market volatility, mortgage default rates, and strategic moves such as Genworth’s planned 40% float of its Australian mortgage insurance arm—all factors highlighted in the article.
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