LMI waivers on the chopping block?

by AB06 Jul 2020

LMI waivers for professionals have long been available to eligible borrowers, in recognition of the fact that these registered professionals – such as engineers, doctors and lawyers – represent a low risk for defaulting on their loans.

“Medical professionals are amongst the most commonly accepted industry to be given an LMI waiver across a number of lenders, but other professionals who are offered LMI waivers include lawyers, accountants and even sports and entertainment professionals,” explains Aaron Christie-David, managing director and finance broker at Atelier Wealth.

“Brokers can help potential clients by identifying client occupations that are eligible, and they’re also familiar with lender policies regarding LMI waivers, given that some have a minimum income requirement and/or a maximum loan amount.”

Aaron Christie-David, managing director, Atelier Wealth“There have been a few lenders that have been clamping down on their LMI waiver policy and ... even though the client may be eligible, the bank is opting not to apply this policy” Aaron Christie-David, managing director, Atelier Wealth

When purchasing a property with an LVR of between 80% and 90%, those in eligible professional  industries can save up to tens of thousands of dollars via the waiver, depending on the value of the  property being purchased.

This makes recent reports that some banks are winding back their waiver offers fairly significant for borrowers who are considering getting a loan in the near future.

“I’m often a little wary when I hear about anecdotal evidence, as there could be mitigants to the waiver, and even pre-COVID it may not have been an approved loan. However, we have seen medical professionals have their LVRs capped at 85% for LMI waivers, while some lenders, such as Westpac and St. George, have definitely removed this [waiver] for white-collar professionals, sportspeople and entertainers,” Christie-David says.

“There have been a few lenders that have been clamping down on their LMI waiver policy, and some of these changes have been communicated explicitly, while feedback amongst broker peers suggests that sometimes, even though the client may be eligible, the bank is opting not to apply this policy. Being CBD-based, we often work with a number of legal and finance professionals, and the huge advantage we have is that there are plenty of other lenders still active in this space. This is where being a mortgage broker is such an advantage, when we have so many lender options at our fingertips.”

Which professionals can access an LMI waiver?

Melbourne-based finance and property adviser Mary Sartinas of Affiliate Finance & Property has also noticed this trend emerging, noting that there have been “some changes to the lending policy for professional borrowers”.

“We’ve found that CBA will now waive LMI for loans of up to 90% for select professionals in the medical, legal and accounting sectors who are borrowing for owner-occupier purposes; however, the LMI waiver will not be available if the purpose is for investment,” she explains.

“NAB and Westpac have a limited LMI waiver policy that is only available to medical professionals at 90% and 85% respectively. Meanwhile, ANZ’s LMI waiver policy remains at 90% for medical, legal and accounting professionals.

“It’s important to keep in mind that these lending policies can change at any time – and given the scope of options that are still available in this space, our clients are not significantly impacted by these recent changes.”

A bigger concern for borrowers has been the impact of more conservative valuations as banks and lenders take a more cautious view and increasingly appear to be shading their property valuations lower.

“It’s expected during times of economic uncertainty that banks will take the required precautions and be more careful when making lending decisions. Whilst we have noticed that the values in some suburbs have remained stable, there has been an evident drop in valuation results in other areas, which could be triggered by a number of variables,” Sartinas says.

Mary Sartinas, finance and property adviser, Affiliate Finance & Property“We’ve found that CBA will now waive LMI for loans of up to 90% for select professionals ... however, the LMI waiver will not be available if the purpose is for investment” Mary Sartinas, finance and property adviser, Affiliate Finance & Property

“Low valuations have had an impact on a small percentage of our clients, but having the ability to order an upfront bank valuation enables us to determine our client’s equity position prior to lodging an application, and from there we’re able to move forward with a realistic expectation.”

Christie-David has a similar view and says access to data is a broker’s best ally in the current environment.

“Low valuations tend to poke their ugly head up consistently, so we always start by ordering a property report, which will give us a good range on a bank’s estimated value. We base our numbers on this midpoint, and once we order the [borrower’s] valuation, there really shouldn’t be any surprises if we have planned for the worst but hoped for the best,” he says.

“We also order valuations upfront to avoid submitting deals that would ultimately fall over at the valuation stage.”

As for where property values will head in the months ahead, Christie-David says clients often ask him and his team for their views on the market.

“We’re being asked more and more about the property market, stamp duty, land tax incentives, first home buyer grants – which is great, as we get to educate our clients. This shows me that with all these options for homebuyers, they are being bombarded and overwhelmed with information, and our role is to be their problem-solver,” he says.

Sartinas adds that with a significant level of uncertainty as to what will happen to the property market as 2020 progresses, many potential property buyers are seeing opportunities amid the crisis.

“Some investors and developers have turned to specialised lenders or private funding to keep their projects moving, and although this means paying higher fees and accepting a higher [interest] rate, for many this is still a feasible option – especially at a time when rates are at an all-time low – versus shelving a project for an indefi nite period of time,” she explains.

“I also believe that every economic shift opens up new opportunities for each type of borrower, whether it be fi rst home buyers, owner-occupiers, investors or developers. In recent weeks we have seen a spike in enquiries from owner-occupiers looking to upgrade their homes, investors who are exploring the potential to expand their portfolio, and even fi rst home buyers looking to get their foot in the door. With interest rates at a historical low and the potential to secure a good property deal, we can expect to see the mortgage industry continue to be very busy.”