Non-major bank offers 85% LVR with no LMI

UBank, the digital bank owned by National Australia Bank (NAB), has announced that it will offer eligible owner-occupiers a home loan without lender’s mortgage insurance (LMI) if they have a deposit of 15 per cent or more.

While LMI is usually required on loans where a borrower has a deposit of less than 20 per cent of the property value, UBank has said that it will now offer LMI-free loans for mortgages that cover 85 per cent of the property value.

The move will cover 85 per cent loan-to-value ratio (LVR) owner-occupier mortgages with principal and interest (P&I) or interest-only (IO) repayments, subject to eligibility criteria.

According to the bank, an owner-occupier taking out a mortgage of $480,000 with an LVR of 85 per cent would save approximately $5,000 in insurance costs and could enter the market earlier than if they had to save for LMI.

UBank CEO Philippa Watson said: “We’re passionate about helping Australians get into their own homes, but we know saving for a home deposit takes an average of 4.6 years, rising to over eight years for Sydneysiders.

“By only requiring a 15 per cent deposit and waiving the need for LMI, UBank can help shave nearly seven months off the process,” she said.

“We know the appetite for home ownership is continuing to grow, with 56 per cent of Aussies who do not yet own a home excited about the prospect of owning one, up 13 per cent since July last year.

“But saving for a deposit can make the great Australian dream seem out of reach,” Ms Watson continued.

“LMI can add tens of thousands to a borrower’s loan. Here at UBank, we believe it’s an extra expense our customers can do without,” the CEO concluded.

While the offering is not yet available via the broker channel (UBank is currently a direct-to-consumer bank), it may be broadened out to the channel once it subsumes the 86 400 brand.

Last week, shareholders of 86 400 approved the deal, which is set to be heard in the federal court today (11 May).

The transaction, which has already received the green light from ACCC, would see all 120 people in the 86 400 team become part of the NAB group.

Speaking to Mortgage Business earlier this year, Ms Watson said: “We are very impressed by 86 400’s broker business and want to see this broker proposition continue to thrive if we receive the necessary regulatory and government approvals.  

“We will work with the 86 400 team to develop the future model for home lending that brings together the best of our direct lending to customers supported by our great team and 86 400 lending through brokers.”

Lenders review LMI offerings

UBank is the latest bank to look to gain market share by reducing the barrier to entry to the property market for borrowers by reducing their LMI costs.

Last week, Gateway Bank unveiled a Monthly Premium LMI offering to help those with low deposits access a mortgage sooner.

Under the new structure, borrowers taking out a Gateway Bank mortgage with a deposit of at least 5 per cent of the property value can choose whether they would prefer to capitalise the cost of LMI into the loan to cover the risk to the lender, or pay an upfront fee, or instead make use of a Monthly Premium LMI.

The premium is paid on a monthly basis only until the loan-to-value ratio (LVR) of the mortgage drops below 80 per cent (at which point LMI is no longer required).

According to Genworth, the applicable premium rate is determined primarily by the size of the loan and deposit. Once set, the premium is held constant at that dollar amount unless there is a material change to the loan.

[Related: 86 400 shareholders approve NAB deal]