More help for first home buyers can’t come soon enough.
Fresh data has laid bare the scale of the affordability crisis facing first-time buyers, with housing costs pushing many to the brink. According to CoreLogic, a perfect storm of limited housing supply, cost-of-living pressures, high interest rates and sluggish savings has dragged affordability to near record lows.
Their latest figures show that every one of their four key affordability measures hit or matched record levels of strain by the end of 2024. The median dwelling now costs eight times the median household income, and it takes over 30% of gross income to service a new mortgage. The deposit hurdle is no easier—buyers now need more than 10 years to save for a 20% deposit.
The pressure isn’t just on buyers—renters are also being squeezed as housing costs rise across the board.
In this week’s newsletter, we look at how Lenders Mortgage Insurance is being used to attract votes and/or borrowers.
What is LMI?
Lenders Mortgage Insurance (LMI) is a type of insurance that protects lenders – not borrowers – when a home loan applicant has a deposit of less than 20% of the property’s value.
While it doesn’t provide any cover for the borrower, it enables them to enter the property market sooner by reducing the upfront deposit requirement.
LMI is typically applied when the loan-to-value ratio (LVR) exceeds 80%, and the cost can range from a few thousand dollars to tens of thousands, depending on the loan amount, deposit size, and insurer. The premium is usually added to the loan balance and paid off over time.
LMI is calculated based on a sliding scale, where higher LVRs and larger loan amounts result in significantly higher premiums. For example, someone borrowing 95% of a $700,000 property might pay over $20,000 in LMI, compared to a lower premium if borrowing at 85% LVR.
Is there an underwriting process?
No. Unlike car and home insurance, and the various kinds of life insurance, there is no underwriting process for LMI during which an insurer assesses individual risk per policy. So the type and location of the house are largely irrelevant, as is the borrowers occupation, income or health, meaning there is no high or low risk borrower in the eyes of the insurer.
LMI as a political and marketing lever.
Both political parties and lenders have increasingly used LMI as a policy lever and marketing incentive. Government schemes like the First Home Guarantee (previously the First Home Loan Deposit Scheme) allow eligible first home buyers to purchase a property with as little as a 5% deposit without paying LMI. Instead, the government guarantees the loan, giving lenders enough security to waive the insurance. This effectively removes one of the major cost barriers for new buyers.
Some lenders, particularly non-major banks and digital lenders, also use LMI waivers or discounts as a competitive tool to attract specific segments, such as medical professionals, lawyers, or high-income earners. These offers position lenders as more accessible and borrower-friendly while still managing risk through employment and income criteria.
A necessary evil?
Unfortunately, lenders feel they need some form of safety net, even through the data would most likely reveal that the need for a lender to claim under the policy is highly unlikely.
In an environment of rising house prices and affordability challenges, LMI becomes more than just a risk management tool—it’s a bargaining chip in the battle for votes and market share. Whether through policy or promotion, its strategic use continues to shape borrower behaviour and access to home ownership.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
