Lenders will continue to shy away from risky home loans as mortgage stress rises, Genworth Mortgage Insurance Australia said as it reported a drop in annual underlying profit of almost 20 per cent.
The chief executive of Australia's largest lender mortgage insurer, Georgette Nicholas, said that about 17 per cent (or $4.5 billion) of the group's new business for the year to December 2016 was for loans from buyers with a 90 per cent LVR - which means that they borrowed more than 90 per cent of their property's value.
This represents a 40 per cent decline from the previous full year, where these types of loans were worth $7.5 billion and made up 23 per cent of new premiums written.
High LVR mortgages are often favoured by first home buyers.
"Affordability remains pressured in a number of markets and low interest rates are increasing refinancing activity, which means increasing competitive pressures among customers [lenders] to retain their borrowers and margins," Ms Nicholas said.
"There is a push from lenders to write lower LVR home loans, in the 75 to 85 per cent end. Some of that is based on regulatory changes that have come through around serviceability and also the limitations around investments properties, with lenders reacting to that."
Although the national unemployment rate has moved up slightly to 5.8 per cent in December in 2016, key labour market indicators remain mixed, with Genworth saying under-employment is at near-record highs and wage growth remains subdued.
Higher delinquency rates in mining regions in Queensland and Western Australia also continues to impact.
"While unemployment overall has been stable, the growing trend of underemployment is creating growing mortgage stress in these areas where manufacturing and employment has declined," Ms Nicholas said.
She was commenting as Genworth announced its full year results which saw its underlying net profit fell almost 20 per cent per cent to $212.2 million for the year to December, which Ms Nicholas said was in line with the company's guidance.
The LMI provider, which offers protection to lenders from borrowers defaulting on their home loans, said its gross written premium or revenue fell 27.8 per cent to 381.9 million from $507.6 million for the year before.
Genworth's shares were down 13 per cent at $2.92 at 12:40pm AEDT. The shares hit a 52-week high of $3.50 last week.
"We face some really challenging dynamics including the reduced high loan-to-value market in response to changes in lender risk appetite, but also to regulatory changes," Ms Nicolas said.
"Given the growth in the investor space in the latter part of 2016 we're likely to see continued regulatory focus in the market."
According to Ms Nicholas, the push towards 80 per cent LVR loans was forcing more parents to provide guarantees over their childrens' loans. But she remains concerned about the longer-term impacts of this trend.
"I can appreciate the willingness of parents wanting help their children where affordability is challenged and get into housing, but I think the flip side of that, is in a stress event if the child cannot pay the mortgage what happens to the parent's property?" she said.
"If they have other assets and cash available to make that loan hold then that's one thing, but i f they have to sell their home to facilitate the support of the child's home if it's in stress, that means two homes are on the market at once."
