The housing slump is creating opportunities for previously priced-out buyers to enter the market, with Genworth Mortgage Insurance Australia saying there are signs of a recovery in low-deposit home loans to first home buyers.

The mortgage insurer’s latest results showed a larger share of its new insurance was covering loans with deposits of 10 per cent or less, which are favoured by many first home buyers.

aGenworth Australia CEO Georgette Nicholas, Photo: Louie Douvis

Chief executive Georgette Nicholas said the trend was influenced by lower house prices, especially in Sydney, which had resulted in greater demand for first home buyers, who typically have smaller deposits.

“The indication there is really that we are starting to see first-time home buyers come back into the market. In particular, they tend to be that target audience for the greater than 90 per cent LVR space, and that’s kind of our core product that we offer,” Ms Nicholas said on a call with analysts.

Genworth provides lenders’ mortgage insurance, which covers banks from default by riskier borrowers or those with smaller deposits.

In its first half, the share of new insurance written for mortgages with a loan-to-valuation (LVR) ratio of 90 per cent or higher was 20 per cent, it said, up from 19 per cent last year, and 17 per cent in 2016.

Even so, the total value of new insurance covering low-deposit loans still fell, a sign banks remain cautious in this part of the market.

The weak state of the property market was also underlined by CoreLogic figures on Wednesday, which showed national prices fell at their fastest pace in six years, losing 1.6 per cent in the last year. Sydney’s market led the way, dropping  5.4 per cent, as Melbourne prices fell 0.5 per cent.

Regal Funds Management portfolio manager Omkar Joshi said the uptick in first-home buyer activity was an “incremental positive” for Genworth, but the company still faced a subdued outlook because of the banks’ caution towards customers with skinny deposits.


“The reality is the banks are doing less business at 90 per cent LVR, in terms of the total value of loans written. It’s still going to be tough for them from that perspective,” Mr Joshi said.

Genworth’s net profit after tax fell by 53 per cent to $41.9 million, as premium revenue was dragged down by previously-announced changes to its premium-earning pattern. The change has effectively lengthened the time over which premium revenue is earned. Its share price rose 4.46 per cent, to $2.81.

With banks experiencing a gradual rise in mortgage arrears, Genworth said mortgage delinquencies as a share of its total policies in force rose from 0.51 per cent to 0.54 per cent. The rise was partly due to a review which had detected lapsed policies, alongside higher loan delinquencies in Western Australia, New South Wales, and Queensland.

Mr Joshi said mortgage delinquencies were likely to climb higher for Genworth as interest rates edged up, and as banks reported a gradual rise in arrears from historic lows.

“It’s a very slow burn, it’s not a big dramatic jump,” he said.

Commenting on the economic outlook, Genworth forecast more “out of cycle” increases in home loan interest rates by banks, and further “moderation” in the housing market due to tightening in credit and a wave of new homes coming onto the market.

“Metropolitan housing markets in Sydney and Melbourne are predicted to lead the trend whilst the rate of decline in regions linked to the mining resource industry in Queensland and Western Australia, is expected to stabilise,” the company said.

Genworth will pay a fully-franked interim dividend of 8c a share, and a special dividend of 4c a share, to be paid on August 30.


Sydney Morning Herald, First home buyer return as housing slump worsens,