Compare the Market property expert Andrew Winter says LMI is outdated overkill given how the market has changed.

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An ‘outdated’ mortgage policy is stopping thousands from buying a home, with experts deeming it unfair overkill given banks’ ‘vast sea of profit’.

Mortgage comparison firm Compare the Market is among those calling for a lending rule overhaul amid a senate enquiry into how regulation affects home ownership levels – saying tackling ‘outdated’ lenders mortgage insurance policies should be top priority.

The firm’s property expert Andrew Winter said LMI was introduced in 1965 but had passed its use-by date and was now simply penalising buyers in a boom.

LMI is paid by buyers who are further penalised with higher interest rates.

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“Lenders mortgage insurance is designed to protect the lender in case the borrower defaults. But if we look at historical data – the median house and unit value in Australia increased 72 per cent in the decade to 2022,” he said.

“It’s unlikely the lender will sell at a loss. Even if they did occasionally take a hit and sell at a loss, it would be like a drop in the ocean in a vast sea of profit.”

“It’s clear that LMI is a heavy-handed deterrent that is not fit for purpose in today’s property market.”

Mr Winter called for LMI to be abolished or, failing that, reformed to reflect savings capabilities today.

He said many young buyers were priced out of the market due to rapid price growth.

“With property prices climbing tens of thousands of dollars in some parts of the country, a lot of buyers feel that they are falling behind. When the goalposts move this much, so must our lending rules.”

Andrew Winter said if LMI remained its automatic waiver should apply to more professions not just those in medicine and law. Picture: Luke Marsden.

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Mr Winter added that in instances where LMI was paid by borrowers, they should be able to access fairer interest rates, not penalised further with higher rates than others.

“At the moment, people with a deposit of less than 20 per cent have to pay tens of thousands in LMI, and then on top of that, the bank might deem them a high-risk lender for not having a 20 per cent deposit, and then give them a higher interest rate,” he said.

Mr Winter also called for the banks’ automatic waiver of LMI for certain industries like medicine and law to be extended to other professions.

“We believe these concessions could be extended to other industries with a history of job stability.”

Compare the Market’s household budget barometer 2024 found not having enough of a deposit was the most common hurdle for househunters (62 per cent), with the average person surveyed saving $28,411 – or about 3 per cent of the average dwelling price ($959,300 in June 2024).

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