Bridget Sakr, Chief Commercial Officer at Genworth, explains one way of getting into your own home sooner.
Rising property prices in many locations, combined with cost of living pressures and the everyday stresses of life, mean that it is as difficult as ever to save a deposit to buy a home.
In 2014, Genworth conducted a survey of over 2,000 Australian consumers to gauge sentiment around the property market and mortgage stress. The survey found that one in three prospective first homebuyers were struggling to save a deposit for a home.
The research also showed that two thirds of all homeowners believed it was harder for today’s fist home buyers to enter the market than it was for previous generations.
When considering how long it would take to save a 20 per cent deposit in the current market, almost 60 per cent of all those surveyed estimated it would take them four years or more.
Many prospective first home buyers are also sacrificing many things in life to try to scrape together that all-important deposit.
Lenders Mortgage Insurance, or LMI, may help you to buy a home without having to save a 20 per cent deposit.
This is because LMI insures the lender in the event that you default on your home loan. Doing so reduces the risk for the lender because they’ve passed that risk on to the LMI provider. And because the lender has reduced their risk, they are more willing to lend the funds for a property to a borrower with a smaller deposit – sometimes even as low as five per cent of the value of the property.
Using LMI means that a home buyer who is interested in a $500,000 property, and facing the prospect of saving a $100,000 (20 per cent) deposit could potentially only have to save $25,000 (five per cent). This means they can get into their home sooner, begin paying off their home loan and potentially start building equity sooner.
The cost of this insurance is passed on to the borrower and can usually be added to your home loan.
LMI premiums are based on a combination of factors that influence the risk of a borrower defaulting on their loan, but the key drivers are the amount of the loan and the value of the security (i.e. premiums are more expensive for larger loans with smaller deposits). As an example, for a first home buyer who wishes to purchase a $500,000 property and has a $50,000 deposit, Genworth’s LMI Premium Estimator
returns an indicative LMI premium of $7,920 – a small proportion of the overall cost that will help you to enter the market months, or years, earlier than if you had to save that additional $50,000.
Being a part of Australia’s leading provider of LMI has allowed me to see firsthand the difference LMI can make to the lives of Australians, by helping them get into homes sooner, and alleviating much of the stress associated with saving a traditional 20 per cent deposit.
To date Genworth has helped over 51,800 borrowers through this program, through supporting lenders to offer deferred repayments and reduced repayments, and even loan term extensions. Genworth
also understands that borrowers might encounter financial difficulty. This is why we have established a Hardship Program
, which assists borrowers in financial difficulty.
I would encourage anyone struggling to save a deposit to speak to their lender or broker about LMI – an option that helps Australians get into their own homes sooner.
Genworth is a leading provider of Lenders Mortgage Insurance in Australia. Lenders Mortgage Insurance has been an important part of the Australian residential mortgage lending market since it was introduced by the Australian Government in 1965.
Lenders Mortgage Insurance facilitates residential mortgage lending by transferring risk from lenders to Lenders Mortgage Insurance providers, predominantly for high loan-to-value ratio residential mortgages. Genworth Australia believes the provision of Lenders Mortgage Insurance to lenders has contributed to comparatively high levels of Australian home ownership and residential mortgage loan accessibility, supporting the housing market in Australia.
For more information on Lenders Mortgage Insurance, please visit genworth.com.au.
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