Fewer risky loans to mean heftier deposits, says Genworth chief

An increased wariness of risky loans among lenders will mean borrowers must pay larger deposits, says Georgette Nicholas of insurers Genworth.

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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.”
 

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