How doctors, lawyers, accountants and miners borrow more without upfront costs

Home buyers planning to borrow more than 80 per cent of the home’s value normally need to pay upfront lender’s mortgage insurance (LMI) costing thousands of dollars, but there’s a whole cohort of professionals who can borrow much more and pay no LMI.

But with the COVID-19 crisis disrupting the economy, some lenders have temporarily withdrawn their waived LMI offers, while others have entered the market looking for low-risk customers.

What is LMI?

Paid at the time of loan settlement, LMI is an insurance policy designed to protect the lender from financial loss if the borrower can’t afford to meet their home loan repayments.

Depending on the size of your deposit, the loan amount, your borrowing power and whether you’re an owner-occupier or investor, LMI can range from a few thousand dollars up to tens of thousands.

While it’s a one-off payment, it can be a hefty expense on top of the cost of buying a property.

Who typically qualifies for waived LMI?

Managing director at homeloanexperts.com.au Otto Dargan says doctors, especially high-earning specialists, are at the top of lenders’ ideal customer list.

“They can often borrow 100 per cent of the property value,” he says. “Doctors don’t have a minimum income requirement and include vets, chiropractors [some lenders only], pharmacists and dentists.

“Lenders really want specialist doctors such as heart surgeons and anaesthetists as they tend to have much higher incomes.”

Dargan says lawyers, mining engineers, professional athletes and entertainment professionals may also qualify and Mozo property expert Steve Jovcevski adds accountants and solicitors to the list.

According to Lendi managing director and Domain Home Loans director David Hyman, if these professionals meet the criteria for waived LMI they tend to have “low downside” for lenders, with industry bodies acting as a proxy for customer qualification.

“If you’re a doctor you have to have industry body membership and they’ll look at which hospital you practise at,” he says.

“It’s the same with accountants who have to have membership to CPA or CA. [Those memberships] imply a certain level of education standards because most of those bodies have minimum bars: the relevant degree, regular continuing professional development, checks to make sure you’re still practising and in the industry.”

Dargan says banks use historical data to identify professional niches with good credit habits. They’re typically people who are more likely to start a business and be a better customer for the bank, more likely to borrow larger amounts and more influential in the community which can translate to more business for their lender.

“Accountants and solicitors have many self-employed and high-net-worth colleagues and clients,” Dargan says. “Doctors refer other doctors. Entertainment professionals often make partnerships with banks.”

Other borrowers who may qualify for waived LMI

Investors buying a Defence Housing Australia property may qualify for waived LMI regardless of their occupation.

“DHA properties have a guaranteed rental income and low management fees,” says Dargan. “People who buy DHA properties tend to be conservative and so are more likely to pay their loan, but note that very few lenders offer waived LMI for DHA properties, it’s a niche offering.”

Chief executive officers earning more than $350,000 will be considered by a handful of lenders as will some high-income-earning borrowers buying in metro areas who are assessed on a case-by-case basis.

Borrowers opting for a guarantor loan can also avoid LMI.

“Many first-home buyers should be getting a guarantor loan,” says Dargan. “Why pay tens of thousands of dollars in LMI if your parents are willing to help you?”

With a guarantor loan you can borrow up to 110 per cent of the property value, which will cover all purchasing costs and allow for debt consolidation if required.

Changes to waived LMI offerings

Both Hyman and Dargan report a reduced field of lenders at least in the short term.

“There have been a few changes off the back of COVID-19, mostly relating to lenders taking extra verification steps for affected industries,” says Hyman.

Dargan says homeloanexperts.com.au are still locking in approvals for select professionals “with some great deals” but says overall there are fewer options available.

“Some lenders have decided this discount is too high-risk at the moment and have dropped their maximum LVR from 90 per cent to 85 per cent or have removed this discount entirely,” he says.

“Others are still available, however they tend to be declining any loan that is slightly outside of policy.”

Examples of recent policy changes include St George’s decision to reduce its LMI waiver for the medical sector from a maximum LVR of 90 per cent down to 85 per cent, and the Commonwealth Bank’s decision to withdraw its LMI waiver offers on all investment home loans.

Granite Home Loans has hit pause on new applications for its “No LMI” products until “the current environment settles”.

On the flipside, Jovcevski says the case for waived LMI has been strengthened for some lenders who see the value of these professionals in a crisis like the current pandemic.

“Lenders have realised how important [these professionals] are and that there’s a shortage of doctors. These borrowers are in a field where they have stable and safe employment – they’re the types of borrowers they want.”

Jovcevski says waived LMI loans are not widely advertised, perhaps because lenders are keen to target their audience through the relevant industry bodies and avoid inquiries from borrowers who won’t meet the lending criteria.

Hyman says if you’re confused as to whether you qualify for waived LMI, it can help to speak to a broker.

“Like any specific policy niche, it’s really important to understand what the playing field is,” says Hyman.

“Sometimes there are additional offers that go with these products that aren’t published in the open market and the only way to understand the offers is to work with someone who has access to all the products on the market.”