One of Australia’s largest insurance groups, QBE, has placed a temporary halt on offering Lenders Mortgage Insurance (LMI) to specific groups of new mortgage borrowers.
QBE reportedly told banks earlier this week of its move to temporarily freeze its LMI offering for new loans taken out by borrowers in COVID-19 affected sectors such as hospitality, tourism, gyms and beauty salons.
"We expect responsible lending obligations would have put a stop to much of the lending to those impacted by the COVID-19 crisis," said a QBE spokesman in a statement reported in the AFR.
"As this situation evolves, we will continue to work with our lenders to do what we think is in the best interests of our people, our customers and the communities in which we operate.
"We recognise the need to look at individual borrowers' circumstances and therefore all of our lenders have the ability to seek an exception to this embargo."
Australia’s other major Lenders Mortgage Insurance provider, Genworth, has stated that it has no plans to change its existing position on offering LMI, though it noted in a statement that lenders will need to continue to assess borrowers’ circumstances based on responsible lending standards.
What is Lenders Mortgage Insurance (LMI)?
Lenders mortgage insurance is a type of insurance borrowers with a home loan deposit lower than 20% are generally required to pay in order to secure the loan.
This is mandated by banks and other financial institutions in order to safeguard themselves against risk in the event that a borrower is unable to repay the loan.
There are some expectations though, as some lenders lower LMI restrictions for borrowers in particular professions such as doctors, lawyers and accountants.
LMI is often confused with mortgage protection insurance which is a completely different type of insurance which instead provides financial protection for borrowers in the event that they default on their loan as a result of job loss, illness, injury or death.
Will QBE’s move affect the First Home Loan Deposit Scheme (FHLDS)?
While QBE’s decision may have an impact on the ability of some prospective low deposit, first home buyers affected by COVID-19 to take out a loan, Mozo Property Expert, Steve Jovcecski, says it will have no bearing on the First Home Loan Deposit Scheme.
“QBE’s move won’t have any impact on the First Home Loan Deposit Scheme because the whole point of the scheme is to ensure that, if you qualify for it, you don’t have to pay LMI,” he said.
More generally, Jovcevski stated that it’s simply a very challenging time for prospective borrowers - particularly those who have been financially affected by COVID-19.
“The unfortunate reality is that people who have just been stood down are unlikely to be able to get a home loan.”
“I expect that the lenders themselves will be pulling back in regards to some of those industries most affected, because there’s just so much uncertainty about when things will return to normal and what that will actually look like [financially] for many workers.”
RELATED: Everything you need to know about Coronavirus and your finances
For more information about Lenders Mortgage Insurance or the First Home Loan Deposit Scheme check out the linked guides, or head on over to our home loan comparison hub for the latest news, guides and a heap of other resources.