High LVR loans falling despite heated market

by Julia Corderoy01 May 2015
A major mortgage insurer has reported a large decline in new insurance written, as high LVR loans continue to trend lower due to the intense competition in the mortgage market.

Genworth Mortgage Insurance Australia has reported a 20.9% decline in new insurance written over the first quarter of 2015. In fact, the mortgage insurer’s quarterly results presentation reveals that the amount of new insurance written over the quarter is at its lowest in a year, at $7.2 billion. 

In the release of the results, Genworth’s CEO and managing director, Ellie Comerford said the decline is a result of a continued reduction in mortgage originations in the greater than 90% LVR bracket.

The penetration of lending in the high LVR space has been beginning to trend lower now for over three years, according to APRA statistics. The number of loans approved with an LVR greater than 90% made up 11.4% of total new residential loans approved in December 2014, the lowest share since June 2011. 

As interest rates remain at record lows and house prices remain at record highs, the Reserve Bank and ASIC have been keeping a close eye on ensuring lenders maintain prudent residential lending practices. As a result, highly geared borrowers may have seen themselves pushed out of the race in favour of 'safer', lower LVR customers.

According to Genworth’s first quarter results, the number of paid claims also declined over the quarter, by 10.8%. Comerford said the significant decline in the number of claims was due to a lower volume of loan arrears converting to claim. This could also indicate that the intense mortgage competition may be stamping out higher geared borrowers with high LVR loans.