St. George "competes head-on" with government to reduce first home buyer deposit burden

Earlier this week, one of Westpac’s subsidiary banks announced a new offer that could help lower one of the biggest hurdles to owning your first home. Could it give the government’s First Home Loan Deposit Scheme a run for its money and encourage other lenders to follow suit?
St George one dollar LMI for first home buyers July 2020
St. George offers $1 LMI to some first home buyers. Image source: fizkes, Shutterstock.

St. George Bank reduced its Lender’s Mortgage Insurance (LMI) premium to $1 from Monday, 13 July for eligible first home buyers who have a 15% deposit saved up.

LMI premiums can often stack up to thousands of dollars, and are typically charged where the borrower has a deposit of less than 20% of their property’s value. They are a cost that is there for the lender’s benefit, insuring them against the risk of the borrower being unable to pay off their loan.

The St. George offer is available to owner-occupiers buying their first home on selected loan products with a maximum home loan size of $850,000 paid off with principal and interest repayments, and a maximum property value of $1 million.

Canstar finance expert Steve Mickenbecker said that in some ways, St. George’s offer was similar to the government’s First Home Loan Deposit Scheme (FHLDS) – which helps eligible first home buyers with deposits as low as 5% to get a loan – in that it could remove the hurdle of having to pay LMI premiums.

However, he noted the St. George offer appeared to be aimed at higher-end lower-risk loans than the FHLDS.

“The St. George move competes head-on with the government’s First Home Loan Deposit Scheme, which also aims to relieve the deposit burden for successful applicants and help them save on costly lenders mortgage insurance,” Mr Mickenbecker said.

“St. George’s offer is positioned to include larger loans, up to $850,000 compared to the government scheme which hits its maximum property price cap at $700,000 for Sydney.

“It’s also concentrating at the lower-risk end of the market, requiring borrowers to have put together at least a 15% deposit rather than the 5% minimum for the government scheme.”

Many lenders targeting first home buyers, including most major banks

Mr Mickenbecker said lenders who really wanted to grow their loan book at the moment were going for second-round buyers (people already living in their first home), refinancers and first home buyers.

Although data from the Australian Bureau of Statistics (ABS) showed first home buyer loan volumes were down in May, recent research from ING found many young Australians intend to buy a house in the next two years, out of a belief that COVID-19 has made home ownership more affordable and achievable.

Research also came out of Aussie Home Loans recently indicating it had seen a spike in home loan enquiries from first home buyers in June, rising 219% from the same period last year due to a combination of lower home loan interest rates, falling house prices and new government schemes.

With first home buyer intent in the air, Mr Mickenbecker said most major banks were already targeting first home buyers with various initiatives, but ANZ was the odd one out.

Commonwealth Bank and National Australia Bank have both been accepting applications under the FHLDS, making up a big chunk of the 10,000 loan cap in the first half of this year and the new batch that started when the scheme reopened on 1 July.

Westpac has taken a slightly different route, giving 18 to 29-year-olds the option to earn up to 3% interest in their Westpac Life account, which Mr Mickenbecker noted appears to be targeted primarily at first home savers.

“What they’re doing is going to target first home buyers who aren’t quite ready to move into the market, who are still maybe a year or so away,” he said.

“Whereas St. George and the government’s scheme are both aimed at people who are actually in market or about to go into the market.

“I think ANZ has to join the party somehow.”

With St. George, a Westpac subsidiary, having now launched this incentive for first home borrowers, the other major banks may be watching out to see whether it’s a trial run for the major bank.

A Westpac spokesperson did not confirm to Canstar whether the bank was considering launching a similar proposition to that offered by St. George.

St. George is so far the first lender on Canstar’s database to offer a broad waiver such as the $1 LMI offer for first home buyers, though some lenders may relax the normal requirements for specific professional groups such as doctors, accountants and lawyers.

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