"Currently, home buyers with a 5% deposit are restricted by mortgage insurers to borrow around $400,000. With median house prices in the city and Eastern Suburbs around $615,000, the North Shore at $500,000 and the Inner West at $430,000, mortgage insurers are out of step with the market," says Glenn Maynard, managing director of The Mortgage Store.*
"$400-450k is now a basic level entry price to buy in many Sydney suburbs," he added.
The Mortgage Store is calling for mortgage insurers to review their current policies and increase the amount home buyers can borrow with a 5% deposit to $500,000 and those with a 10% deposit to $600,000. There are three major mortgage insurance companies in Australia - GE, PMI & Royal & Sun Alliance.
"Mortgage insurance company policies are antiquated. To my knowledge they haven't being reviewed for years and the market, particularly in Sydney, has risen dramatically.
"Couples often come to us with combined incomes of $150,000 or more. On paper they can borrow $800,000, but with only a 5% deposit the maximum mortgage insurers will allow them to borrow is around $400,000. If they have a 10% deposit they can look at properties on the market for $500,000," he said.
Maynard says many insurers and bank assessors that assess loan applications from interstate do not understand the Sydney market.
"They cannot comprehend that properties for sale for $400k plus are affordable for first home buyers. They believe that 5% savings is not a lot for a customer to put down on a property but the costs such as Stamp Duty, Lenders fees, legals and Mortgage Insurance are also roughly 5% of the purchase price.
"Someone buying a property for $500,000 and seeking finance at 95% would need a $25,000 deposit and roughly $25,000 to cover their costs. $50,000 is a lot to save,
particularly when paying rent at the same time," Mr Maynard said.
When a mortgage insurer declines a loan, because the deposit is too small, says Maynard, the customer has to go back and attempt to save more whilst still paying rent.
"Many of the prices on the North Shore and Eastern Suburbs are appreciating at a rate faster than people can save. When they are ready to try again the same property may be beyond their reach. For example, if a $450k property that appreciates 10% equates to an increase in $45,000 - how many couples can save $45,000 in one year - after tax?
For the policies to be changed, says Maynard, a review must be driven by the lenders - the insurers will not come forward and 'volunteer' to increase their levels of risk.
"Some lenders, frustrated at the policies of the mortgage insurers have been waiving mortgage insurance requirements on these larger loans in recent months and approving loans without mortgage insurance cover," he said.
Moreover, says Maynard, the few insurers that insure loans have struck different 'deals' and have different policies with different lenders – even though these lenders may use the same insurer.
"As a mortgage broker, it's very frustrating - for the customer, it's very confusing. The Sydney market has moved beyond current policies. Any lender who reviews its policy will see a massive increase in business," Mr Maynard said.
The Mortgage Store can help you get a home loan and work with the mortgage insurers.
KB: Q0014
Last Updated: 26 Sep 2006
