Fewer risky loans to mean heftier deposits, says Genworth chief

by John Maguire03 May 2016
Borrowers will be forced to pay larger deposits when purchasing property in 2016 as a result of lenders becoming increasingly reluctant to commit to risky home loans, according to CEO of Genworth Mortgage Insurance Australia, Georgette Nicholas.

Genworth has recorded a significant drop in high loan-to-value ratio (LVR) loans during the first quarter of 2016, said Nicholas. 

“What you're going to see is lenders really thinking about where they're writing business, how they're responding to [regulatory changes],” she said.

Nicholas was reflecting on Genworth’s first-quarter net profit, which fell 25 per cent to $67.3 million during the first three months of the year from $89.5 million in 2015. Nicholas said that approximately 17% of Genworth’s new business covered loans from buyers with an LVR of 90% (borrowers who borrow 90% of a property’s total value). The 17% rate marks a significant decrease when compared with the first three months of 2015, which saw 29% of new loans with an LVR of 90%.

Genworth, which is Australia’s biggest lenders’ mortgage insurer, also said its gross written premium (revenue) fell to $85 million from $127.7 million, marking a drop of 33%.

Nicholas put the challenges to sustaining revenue down to “changes in the mortgage market, specifically, a noticeable decline in the proportion of high LVR loans originated and changes in lender risk appetite.”

However, she added, “Our first-quarter results are largely in line with our expectations.

“[The results show] continued good underwriting performance with a loss ratio of 27% in line with our guidance and our overall levels of profitability remained strong.”