SYDNEY, Australia – QBE Insurance will no longer offer Lenders Mortgage Insurance cover for all new borrowers from profoundly affected sectors due to the spreading coronavirus.
QBE told banks that it would suspend its LMI cover for all new loans taken out by Australian borrowers who are working in sectors massively hit by the ongoing coronavirus pandemic. The recent decision from the insurer came amid the economic fallout due to the current health crisis.
The insurer announced its decision on Monday, placing a temporary embargo on all new applications for home loans, cash-outs, refinances, and top-ups. New mortgage applications that require insurance from various sectors directly affected by the spreading disease will get declined by the insurer. The people that QBE will not entertain at the moment are those who are working in the hospitality and tourism industries, including beauty salons and gyms.
The Lenders Mortgage Insurance (LMI) is necessary for credits that have over 80 loan-to-value ratios.
According to a spokesperson from the insurer, the temporary embargo for all new loans requiring a Lenders Mortgage Insurance applies to all lenders under its service. The spokesman said that this decision is to provide consistency and clarity moving forward.
The QBE spokesman said that they are expecting that responsible lending commitments would have limited or stop much of the financing offers to those profoundly affected by the coronavirus disease.
The spokesperson further stated that QBE would remain jointly working with their lenders as the situation in the country evolves. He added that they would continue working towards what they believe is in the best interest of everyone, especially to their customers and the community in which they are providing their services.
The QBE spokesman also noted that the insurer recognizes that there may be a need to consider unique circumstances for every borrower. So, QBE will leave the decision to their lenders to contemplate which borrower can get an exception to the embargo they are enforcing.
In Australia, QBE and Genworth provide Lenders Mortgage Insurance for all borrowers.
And while QBE charged its tone amid the spreading coronavirus cases and went forward with the LMI suspension, Genworth is staying put.
In a statement given by Genworth, the insurer said that its LMI coverage remains unchanged right now. The insurance company stated that they would continue providing support to their lenders.
According to the insurer, lenders are the ones who must use responsible lending measures in assessing loan applications based on their merits. Genworth noted that the standards are requiring their lenders also to consider taking into account the current circumstances of the borrower, especially at the time of financing aid.
Meanwhile, the managing director of the SQM Research, Louis Christopher, commented that the recent move of the QBE to suspend its LMI coverage would negatively affect a lot of borrowers. He said that it would be especially damaging to first home buyers, who usually have much smaller deposits.
Mr Christopher stated that the decision of QBE is yet another massive blow that could drag the housing market even further. The First Home Loan Deposit program of the federal government is, according to him, will not gain any positive impact with the temporary suspension of the LMI coverage.
And while it will not directly affect every first home buyer in the country, Mr Christopher added that a large number of investors and home buyers working in profoundly affected areas would experience its effects. People in these regions will no longer be able to obtain financing without having at least a 20% deposit, he said.
The SQM Research managing director also noted that all of these issues would also have negative consequences on the market. He said that the impact could even drag the market further, especially if the LMI suspension will go beyond the industries which are currently experiencing the hardest hit due to the spreading virus.
A managing director of one mortgage brokerage firm in the country, Otto Dargan, also commented about the issue. He said that banks and other lenders are starting to tighten their requirements and policies.
Mr Dargan said that when a customer who is working in an industry which is severely affected by the health crisis like the hospitality and tourism sector, their application will get declined. Their loan can only pass through the screening process if they can prove that their income remains unaffected of the ongoing health crisis, he said.
The managing director added that lenders are far less likely to consider loan applications from those with unstable income types. That includes people who are working on a commission-based, seasonal, temporary, contractual kind of employment. Mr Dargan said that banks primarily see casual income as a massively high-risk consideration. He said that there are very few lenders who are accepting loan application from those line of employment.
Mr Dargan also stated that in general, banks are becoming more consistent with financing guidelines. Lenders are less likely to makes an exception to their borrowers in term of their lending policies in recent times, he added.
He also noted that banks are becoming more conservative amid the ongoing health crisis. They need to, Mr Dargan said, as everyone is currently at a much higher risk than they were even a month ago.
Banks are putting different lending policies in place to help deal with this issue. According to Mr Dargan, some lenders are setting minimum credit score standards. This effort helps them sift through the loan application and only approve those that have minimal risks.
Meanwhile, current mortgage holders are pressing to get better deals from their banks. With the current health crisis in Australia, more people are losing their employment and their steady incomes. These pose adverse effects for those who have loan repayments to make.
And while the 6-month deferral option is available to borrowers, it may add to their overall mortgage bill in the long run. However, it is not something that lenders openly advertise to their customers. For this, experts advised debtors to call and ask their bank for help.