Westpac, one of Australia’s biggest banks, recently announced that it would sell its lenders mortgage insurance (LMI) business to Arch Capital Group, a global insurance company. The sale, valued at $689 million, is expected to be completed by the end of 2021, subject to regulatory approvals.
What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance is insurance designed to protect lenders in case a borrower defaults on their mortgage. It is usually required when a borrower has a deposit of less than 20% of the property value. LMI provides a guarantee to the lender that they will not suffer a loss if the borrower defaults and the property is sold for less than the outstanding loan amount.
Why is Westpac Selling its LMI Business?
Westpac is selling its LMI business as part of its strategy to simplify its operations and focus on its core businesses. The bank has been under pressure to improve its performance after a series of scandals and regulatory breaches.
The sale of the LMI business will enable Westpac to free up capital and improve its return on equity. It will also reduce the bank’s risk exposure to the property market and enable it to focus on its core banking operations.
Who is Arch Capital Group?
Arch Capital Group is a global insurance company that specializes in property, casualty, and mortgage insurance. The company was founded in 2001 and is headquartered in Bermuda. It has operations in the United States, Europe, Canada, Australia, and Asia.
The acquisition of Westpac’s LMI business will enable Arch Capital Group to expand its presence in the Australian mortgage insurance market and strengthen its position as a global provider of mortgage insurance.
What Does the Sale Mean for Borrowers?
The sale of Westpac’s LMI business is unlikely to have a significant impact on borrowers. Borrowers will still be required to pay LMI if they have a deposit of less than 20% of the property value. The only difference is that the insurance will be provided by Arch Capital Group instead of Westpac.
Borrowers should also be aware that LMI is a one-off payment that is usually added to the loan amount. This means that borrowers will pay interest on the LMI premium for the life of the loan.
What Does the Sale Mean for the Australian Property Market?
The sale of Westpac’s LMI business is unlikely to have a significant impact on the Australian property market. LMI is a standard requirement for borrowers with a deposit of less than 20% of the property value, and the availability of LMI from Arch Capital Group will ensure that this requirement is still met.
However, the sale may have an impact on competition in the mortgage insurance market. With Westpac no longer in the market, there will be one less player in an already concentrated market. This may lead to higher premiums for borrowers in the long term.
Conclusion
The sale of Westpac’s LMI business to Arch Capital Group is a significant development in the Australian financial services industry. It will enable Westpac to simplify its operations and focus on its core banking business, while providing Arch Capital Group with an opportunity to expand its presence in the Australian mortgage insurance market.
For borrowers, the sale is unlikely to have a significant impact, as LMI will still be required for those with a deposit of less than 20% of the property value. However, the sale may lead to higher premiums in the long term due to the reduced competition in the mortgage insurance market.