Mortgage stress sees cut to LMI provider profits
As mortgage stress sees more borrowers move away from riskier home loans, Australia’s largest provider of lenders mortgage insurance (LMI) Genworth Mortgage Insurance has seen its annual profits drop by almost 20%.
Chief Executive of Genworth, Georgette Nicholas, said that only 17% or $4.5bn of the group’s new business in the year prior to December 2016 was for borrowers with a 90% loan to value ratio (LVR). This was a 40% decline from the previous year when these loans were worth $7.5bn.
“Affordability remains pressured in a number of markets and low interest rates are increasing refinancing activity, which means increasing competitive pressures among customers to retain their borrowers and margins,” Nicholas said.
“There is a push from lenders to write lower LVR home loans, in the 75–85% end. Some of that is based on regulatory changes that have come through around serviceability and also the limitations around investment properties, with lenders reacting to that.”
The insurer’s profits were also hit by high delinquency rates in the mining regions of states such as Queensland and Western Australia.
“We face some really challenging dynamics including the reduced high loan-to-value market in response to changes in lender risk appetite, but also to regulatory changes.”
The push towards an 80% LVR meant more parents were providing guarantees for their children’s loans, Nicholas said, a trend which could have some negative impacts in the long term.
“I can appreciate the willingness of parents wanting to help their children where affordability is challenged and get into housing, but I think the flip side of that is in a stress event if the child cannot pay the mortgage what happens to the parent’s property?”
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