Thousands of prospective home buyers already bracing for more official rate rises will be hit with higher mortgage insurance premiums from next week.
National Australia Bank has notified mortgage brokers that home borrowers requiring lender’s mortgage insurance will cop premium increases of at least six per cent from 7 June – a move that could add thousands of dollars to the cost of property acquisition.
NAB flagged the premium hikes in a memo sent to brokers this week.
The bank attributed the imminent increases to repricing decisions of its LMI provider, QBE.
“QBE has made changes to its Lender’s Mortgage Insurance premiums,” NAB told brokers in the memo.
“The QBE calculator will be updated with the new premiums structure from 8:00 pm Friday 3 June.
“For all home loan applications, LMI premiums will be increasing by approximately 6 per cent.”
NAB said that the premium hikes would apply to new loans and variation applications with LMI that were submitted after 8pm on 3 June.
The increases would also apply to applications submitted before the deadline if they hadn’t been unconditionally approved.
Lender’s mortgage insurance is mandatory for borrowers seeking a loan to fund more than 80 per cent of a property purchase.
LMI protects lenders against losses when borrowers default on their home loans.
At this stage the QBE premium increases appear confined to NAB.
Six other banks that use QBE for LMI provision told Banking Day on Tuesday that the insurer had not signalled any repricing to their existing premium tables.
Banking Day on Tuesday sought clarification from QBE on whether the NAB premium increases were part of a wider repricing policy that would affect borrowers at other banks.
“QBE has a long term arrangement with NAB, through which pricing has not increased since 2017,” a QBE spokesperson said.
“This is the first price increase since then, as a result of increases to the cost of providing Lenders Mortgage Insurance.
“We are committed to supporting our lending partners who help Australians achieve their dream of home ownership, and we will continue our efforts to ensure the cost of LMI remains as affordable as possible.
“The increase applies to new NAB LMI applications and loan variations from 3 June.”
The NAB premium increases are likely to have a significant impact on new home borrowers with deposits accounting for less than ten per cent of property purchase values.
According to LMI rates tables published on the website of mortgage broking group, The Home Loan Experts, NAB borrowers with a loan-to-value ratio of 90 per cent are currently paying a LMI premium of around 2.6 per cent when they take out a A$500,000 mortgage.
That means they currently pay an upfront LMI premium of $13,000.
However, when the premium rate is adjusted for the 6 per cent increase (signalled by NAB in the broker memo) the upfront premium paid will increase to $13,800.
The premium increase will be bigger for borrowers on a loan-to-value ratio (LVR) of 95 per cent.
According to the Home Loan Experts’ tables, the LMI premiums of NAB borrowers wanting to borrow $500,000 with a LVR of 95 per cent are currently assessed at a rate of 3.24 per cent.
That means they currently pay an upfront premium of around $16,200.
When the premium rate increases by 6 per cent next week to 3.43 per cent, the upfront cost of LMI for the borrower will jump to $17,150.
The NAB premium tables indicate that high LVR borrowers wanting bigger loan amounts are set to pay thousands of dollars more in lender’s mortgage insurance from next week.