Genworth’s falling profits highlight the impact of lower LVRs, driven by regulators and consumer choice
Genworth’s falling profits highlight the impact of lower LVRs, driven by regulators and consumer choice
The changing demand for lenders mortgage insurance has been highlighted by sharp fall in profits for leading LMI provider Genworth.
In its third quarter 2017 earnings results, Genworth revealed profits had fallen by 31%, to $32.1m, down from $46.7m the year previous.
Genworth claims the results are strong “in light of the small high loan-to-value ratio (LVR) market and continued development of losses in mining areas.” Total delinquencies rose 4.4% across the year, focused on struggling mining areas in Queensland and Western Australia.
Nor is the outlook for LMI particularly encouraging: “mortgage interest rate increases, particularly for investor and interest-only loans, and recent changes to minimum bank equity requirements may also impact price growth this year.”
Regulation
The struggles of LMI providers are closely related to changes in regulation.
In March, APRA advised banks to limit interest-only lending to 30% of their portfolio, as well as reducing high-LVR loans, which require LMI.
“Place strict internal limits on the volume of interest-only lending at loan-to-valuation ratios (LVRs) above 80%” noted APRA’s memo “ and ensure there is strong scrutiny and justification of any instances of interest-only lending at an LVR above 90%.”
In the longer term, banks anticipate that rising capital requirements will make high-LVR lending particularly expensive and are looking to limit LVRs above 80%.
Consumer choice
Over the past year, reducing demand for LMI has been connected to low levels of first home buyer activity.
However, FHBs are starting to return to the market in the wake of extensive stamp duty exceptions in several states. Loan approval data from Mortgage Choice found that nationwide FHBs accounted for 15% of all loans in September 2017 up from 10% in September 2016.
Many FHBs may be choosing to avoid LMI by using parental assistance to produce 20% deposits. A survey by comparison site Mozo found that the ‘Bank of Mum & Dad’ is Australia’s fifth-biggest lender, lending $64,206 on average.
The changing demand for lenders mortgage insurance has been highlighted by sharp fall in profits for leading LMI provider Genworth.
In its third quarter 2017 earnings results, Genworth revealed profits had fallen by 31%, to $32.1m, down from $46.7m the year previous.
Genworth claims the results are strong “in light of the small high loan-to-value ratio (LVR) market and continued development of losses in mining areas.” Total delinquencies rose 4.4% across the year, focused on struggling mining areas in Queensland and Western Australia.
Nor is the outlook for LMI particularly encouraging: “mortgage interest rate increases, particularly for investor and interest-only loans, and recent changes to minimum bank equity requirements may also impact price growth this year.”
Regulation
The struggles of LMI providers are closely related to changes in regulation.
In March, APRA advised banks to limit interest-only lending to 30% of their portfolio, as well as reducing high-LVR loans, which require LMI.
“Place strict internal limits on the volume of interest-only lending at loan-to-valuation ratios (LVRs) above 80%” noted APRA’s memo “ and ensure there is strong scrutiny and justification of any instances of interest-only lending at an LVR above 90%.”
In the longer term, banks anticipate that rising capital requirements will make high-LVR lending particularly expensive and are looking to limit LVRs above 80%.
Consumer choice
Over the past year, reducing demand for LMI has been connected to low levels of first home buyer activity.
However, FHBs are starting to return to the market in the wake of extensive stamp duty exceptions in several states. Loan approval data from Mortgage Choice found that nationwide FHBs accounted for 15% of all loans in September 2017 up from 10% in September 2016.
Many FHBs may be choosing to avoid LMI by using parental assistance to produce 20% deposits. A survey by comparison site Mozo found that the ‘Bank of Mum & Dad’ is Australia’s fifth-biggest lender, lending $64,206 on average.
