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Lender Mortgage Insurance and First Home Owner 15% Guarantor Announcement

Lender Mortgage Insurance and First Home Owner 15% Guarantor Announcement

May 14, 2019

Thank you Dan Bourchier for our chat today on Radio ABC666 Canberra.

On Sunday, 6 days before the Election, the Prime Minister announced the Government would be a 15% guarantor for first home owners who have a 5% deposit. By Monday, the policy had bipartisan support. On the surface, this sounds good, but there is more to this story.

Does this mean the lender mortgage insurance, which is levied by the bank when you don’t have a 20% deposit, will be waived by the banks for first home owners? Why would the Government announce this initiative without any consultation with not only Cabinet, but the banks themselves? Without any more detail in the last 48 hours, the logical presumption is that first home owners will be elevated up to 20% deposit. Why announce half a policy and not mention the ever-so-critical lenders mortgage insurance will be cancelled for first home owners? Is that because it won’t be?

Is this Government initiative going to directly interfere with bank profits? Two days later, why has there been not one comment from any of the big 4 banks that they will or won’t cancel out lenders mortgage insurance for first home owners? Is it because those fortunate to clear multiple mortgages over the decades (and who still get charged lenders mortgage insurance with a perfect track record and great credit rating who have less than 20% deposit) will start screaming of the injustice?

The Royal Commission was meant to focus on bank morals and bank behaviour, and to some extent it did expose the “greed is good at any cost” mantra. Unfortunately, the outcome we see on the ground selling real estate is stricter lending criteria blocking purchasers. This doesn’t hurt the banks at all – only first home owner buyers.

Not once during the Royal Commission did the lenders mortgage insurance come up as an overt extravagance of a fee blocking first home owners getting into the market. On a $500,000 loan, the lenders mortgage insurance fee could be $12,000 to $15,000. The banks are already risk adverse in deciding if you do get a loan from them, so why then do they need to insure themselves and add another level of risk protection in case they’ve made a bad call? Their profit announcements each year lead to a conclusion they don’t make a bad call very often.

There is enough evidence that this initiative will only affect about 10,000 first home owners – so why no detail? The modelling would surely not take too long to undertake.

Too many questions not answered ….

Listen to Dan Bourchier interviewing Christine this morning on ABC 666 Canberra:

 

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