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Lenders Mortgage Insurance (LMI) could play a pivotal role in helping borrowers purchase property ahead of further potential property price rises predicted for 2025, according to LMI insurer Helia.
Brokers have noted LMI is being used strategically by some borrowers, particularly in cases when their savings rate is not keeping pace with rapid increases in property price rises in the market.
LMI is likely to continue to be important in 2025, according to Helia chief commercial officer Greg McAweeney (pictured), as potential RBA interest rate cuts could further fuel property price rises.
“As we prepare for interest rates to drop potentially some time in the next year, we could see the subsequent rise in house prices as demand spikes,” McAweeney told Australian Broker.
“With no sign of cost of living or housing affordability subsiding, home buyers will increasingly continue to look for other ways to achieve home ownership goals outside of the 20% deposit route.”
Any further price increases as rates decrease could present particular challenges for first home buyers, as property price rises further extend how long it takes to save a first standard deposit.
“With the ability to provide early market entry, equity growth and financial independence, we see LMI playing a growing role in helping more homebuyers into a house in 2025,” McAweeney said.
Helia’s 2024 Home Buyer Sentiment Report released in September found that only 15% of first home buyers surveyed believed they would be able to save a 20% deposit this year.
This was causing more interest in LMI as a tool to access the market at an earlier date, with 67% of first home buyers saying they considered LMI as a viable option to step onto the property ladder.
“This trend is driven by prevailing sentiment that entering the property market sooner is preferable to delaying home ownership,” McAweeney said.
Cost of living increases were also found to be reducing the ability of borrowers to save a deposit, with Helia’s research finding this was the primary barrier for aspiring homebuyers.
“Increasing rent, groceries and daily living expenses are eroding the ability to save, leaving many struggling to set aside meaningful portions of their income for a deposit,” McAweeney said.
Helia sees first home buyers in particular benefitting from an accelerated entry into the market with as little as a 5% deposit, not including upfront costs like stamp duty and conveyancing costs.
McAweeney said an added benefit for some of these first-time home borrowers was the ability to maintain financial independence, rather than entering into an arrangement like a guarantor loan.
However, LMI is also being used by upgraders to boost borrowing power and build equity, as well as investors, where LMI can provide access to higher priced properties and may be tax deductible.
“LMI enables investors to capitalise on opportunities in high-demand higher value property markets that have strong growth potential,” McAweeney said.
“Instead of waiting years to save a substantial deposit, investors can act when the right investment presents itself, thereby maximising their chances of generating good returns.”
In NAB’s Market Megatrends 2024 Report, prepared together with CoreLogic, the bank predicted capital city dwelling prices would rise by 5% during 2025, despite some slowing growth recently.
This follows a 31.6% rise in national property prices since pre-COVID, the bank said.
Commenting in the report, Birdie Wealth director Nathan Smith said brokers are helping borrowers make compromises, like opting for smaller properties, further locations or different loan structures.
“With the traditional pathway to home ownership becoming increasingly challenging, more home buyers are exploring alternative solutions,” McAweeney said.
“These include Lenders Mortgage Insurance and financial support from the ‘bank of mum and dad’.
“The alternative – continuing to delay and save – offers no guarantee that savings will keep pace with rising housing prices and cost of living pressures,” he said.
