Westpac-owned St George Bank has eradicated a major stumbling block for some first-home buyers as it battles other lenders to capture an expanding portion of the market.
However, some experts have suggested this could come at the expense of thousands more in repayments over the life of a loan.
St George announced on Monday it would reduce the cost of lenders mortgage insurance (LMI) for owner-occupier loans with principal and interest repayments to $1.
The changes cover loans with a loan-to-value ratio (LVR) of 85 per cent and higher, which means home owners with a $150,000 deposit could purchase a $1 million home under the scheme.
St George says home loan customers with a $850,000 mortgage could save about $21,465 on mortgage insurance.
Canstar group executive Steve Mickenbecker told The New Daily St George would likely want home buyers with “income capacity well in excess of their expenses” as the broader lending market dries up.
“The whole profitability of the banking sector is underpinned by home loans,” Mr Mickenbecker said.
“So if lenders can recruit first-home buyers who have proven they can save for a deposit and have solid employment, then they have anywhere from five to 10 years to recover that upfront (LMI) premium.”
Lenders generally charge mortgage insurance on home loans with an LVR that’s greater than 80 per cent to protect them in the event a borrower defaults on their mortgage.
But University of Technology Sydney professor of finance Harry Scheule told The New Daily St George’s bid to obtain a larger share of the buyers pool may prove costly – if it has miscalculated the risks.
With a record 37 per cent of Australia’s youth classified as “underutilised” – either unemployed or underemployed – Professor Scheule said young home buyers are one of the most at-risk groups for job insecurity.
“Generally speaking, promoting mortgage lending in the COVID climate where many existing loans are deferred and young professionals are amongst the ones most exposed to income and job losses may not be prudent or in the best interest of bank and consumer,” Professor Scheule said.