What is LMI: How Sydney couple bought unit without 20 per cent deposit

In the face of skyrocketing property prices, one Sydney couple have pulled off a miracle after being “deflated” by the market.

Mitch Keogh and his fiancee had spent around five years saving a six figure deposit for a house, but with prices skyrocketing in Sydney, the dream kept getting further out of reach.

The couple had spent 18 months searching for a property, but while they had pre approval for a loan of up to $1 million, they didn’t want to spend that much money and “stretch” themselves too far.

The 28-year-old said the goal was to put down a 20 per cent deposit on a place, but it was proving impossible with the market moving so quickly.

The couple found it “deflating”, turning up to auctions only to see a place go for $100,000 above the price guide.

“Some properties you would see on a Saturday on the first open house and it would be sold by Monday,” he told news.com.au.

“You don’t even have time to get the conveyancer on the phone to open the email with the contract, it was moving so quick – it was pretty crazy at times.”

The couple saved a six figure deposit in five years. Picture: Supplied

Despite spreadsheets and “budgets galore”, the Sydneysiders, who both work in business development management, decided to ditch the “stress” of trying to reach the 20 per cent deposit and take out lender’s mortgage insurance instead.

“We did it because of the ability to get in earlier and the deposit while not being 20 per cent still gave us access to get into the market. It was only going to be $12,000 to $10,000 more on the mortgage which equated to a handful of dollars to be paid per fortnight,” he explained.

“It was not necessarily a bad thing and it meant we could get into the property market sooner for an extra $20 to $50 more a fortnight. It fit within our budget and it meant we could make some offers without the stress of not having that 20 per cent deposit.

“The market in Sydney is still heading up, so it means we were able to enter market sooner rather than later and make the most of the rising market.”

Taking out lender’s mortgage insurance only meant paying $20 to $50 more a fortnight. Picture: Supplied

The strategy worked as the couple recently picked up a two bedroom villa in Bexley via an online auction in lockdown for $760,000, with a 12 to 13 per cent deposit.

They even had a “nice little win” as their final bid came $10,000 under the reserve price and the vendors accepted it.

Mr Keogh sent it felt “fantastic” to be now be a homeowner.

“We are at the point where we are going to start a family, so we were wanting to get a foothold in the Sydney market. Our savings in the bank aren’t doing much for us in returns and I work in the construction industry so I’ve always had an affinity for real estate and building so it’s a good little project for us,” he said.

“We will do some renovations and make it our own. It’s a cliche but it’s the Aussie dream to own your own home. I’m noticing people are spending more and more on upkeep and up-speccing their home, so it’s something cool to look forward to and having the asset of home ownership is also really appealing to us.”

They even scored a house that went $10,000 under reserve. Picture: Supplied

Desperate to get into the market

Almost three in four first home buyers in Australia are now seeking to enter the market with a deposit of less than 20 per cent, according to research from lenders mortgage insurer Genworth.

It revealed that 77 per cent don’t care about the type of home they purchase just so long as they own property.

Amid skyrocketing property prices, first home buyers have a fear of missing out and the desire to capture expected capital growth is creating a growing sense of urgency to buy now, Genworth's report found.

“It’s taking longer to save for a deposit with house prices increasing, and we are seeing

more first home buyers circumvent that roadblock by seeking to enter the market with a

lower deposit," said Pauline Blight-Johnston, Genworth’s CEO.

“First home buyers are also telling us they’re feeling financially stretched and almost six in 10 are losing hope altogether.”

Four in five respondents said they would likely use lenders mortgage insurance to bridge the deposit gap, while almost one in seven are also planning to tap into the bank of mum and dad.

First home buyers are feeling financially stretched and almost six in 10 are losing hope altogether. Picture: iStock

What is lender’s mortgage insurance?

Generally, it’s required when you have a deposit less than 20 per cent of the value of the property.

It’s a one-off, non-refundable, non-transferable premium, which aims to protect the lender from financial loss if the borrower can’t afford to meet their home loan repayments.

It can either be paid upfront or added into your home loan.

A lender can make a claim if the borrower defaults on their loan and the sale of the property doesn’t equal the unpaid value of the mortgage.

It allows banks to lend larger amounts and approve more home loan applications.

But a word of warning – if you switch your loan to another provider in the future, you generally can’t transfer your LMI to another lender and instead may have to pay for a new policy.