A broker network has launched a white-label lending product that lets borrowers finance up to 98% of a property’s value without paying traditional lender’s mortgage insurance. Instead, the non-bank lender behind the product charges an upfront fee structure it claims reduces costs and increases purchasing power by up to 30%.
The product targets first home buyers outside government scheme price caps, upgraders with equity but limited savings, and anyone caught between serviceable income and deposit size. The pitch: strong earning capacity and clean credit should matter more than a 20% deposit.
That framing challenges the longstanding deposit benchmark, which the lender argues has widened the gap between owners and renters. But the real question for borrowers is whether swapping LMI for a different fee genuinely lowers the barrier, or simply repackages the same risk at a different price point.
How the cost structure actually works
Traditional 95% LVR loans pair a 5% deposit with lender’s mortgage insurance, typically a one-off premium of 2-4% of the loan amount, capitalised into the loan or paid upfront. At 98% LVR, LMI premiums climb steeply because the lender’s loss exposure increases, a 2% equity buffer disappears quickly if prices drop even modestly.
This product replaces that insurance premium with a flat upfront fee. The lender hasn’t disclosed the exact fee percentage publicly, but the structure shifts the cost from an insurance provider to the lender’s own balance sheet. That tells you the lender is pricing default risk directly, rather than offloading it to an insurer.
The “up to 30% more purchasing power” claim hinges on the fee being materially lower than equivalent LMI. If the fee is 1.5% and comparable LMI would be 3.5%, a borrower saving $10,000 upfront could theoretically bid $10,000 higher. But that only holds if the interest rate and ongoing costs stay competitive with mainstream 95% LVR products.
Key numbers
- 98% LVR borrowing leaves 2% equity as a loss buffer
- Traditional LMI at 95% LVR typically costs 2-4% of loan value
- Default risk pricing increases sharply above 95% LVR
- Property price falls of 2-5% would put 98% LVR borrowers into negative equity immediately
The pricing signal and what it tells you about risk
Non-bank lenders don’t access the RBA’s term funding facility and typically pay more for wholesale funding than the major banks. That higher cost of funds usually shows up as a rate premium, often 0.2-0.6% above the big four’s equivalent products.
If this product charges a lower upfront fee than LMI but carries a rate premium, the total cost over a 25 or 30 year loan could exceed the LMI path, even though the upfront saving feels significant. A 0.3% rate premium on a $600,000 loan costs roughly $1,800 per year, or $45,000 over 25 years. Compare that to a one-off LMI bill of $18,000 and the picture shifts.
The lender’s willingness to take on 98% LVR exposure without insurance also signals confidence in its credit assessment and the borrower profile it’s targeting. High earning capacity, clean credit, stable employment, these reduce default probability, but they don’t eliminate price risk. If property values fall 5%, a 98% LVR borrower is underwater by 3%, and selling or refinancing becomes difficult without bringing cash to settlement.
That 2% equity buffer matters most in the first 18-24 months, before principal repayments and any price growth rebuild the margin. Borrowers considering this structure need to pressure-test their cashflow against rate rises, because refinancing out of a non-bank loan into a cheaper major bank product usually requires at least 10% equity, which could take years to accumulate at 98% LVR.
The practical calculation you need to run
Compare the all-in cost across the life of the loan, not just the upfront number. Take the upfront fee, add the total interest cost over your expected holding period (use a conservative estimate, most people hold a loan longer than they plan), and stack it against a 95% LVR loan with LMI and a lower ongoing rate.
If the non-bank rate is 6.5% and the major bank rate is 6.2%, the difference on a $600,000 loan is $1,800 per year. Over five years that’s $9,000, assuming rates don’t move. If the upfront fee saving is $8,000, you break even at year four, and lose money from year five onward.
The purchasing power claim assumes you’ll use the upfront saving to bid higher. That works if you’re competing in a price-sensitive segment where an extra $10,000-$15,000 decides the auction. It doesn’t work if the property you’re targeting is already within reach at 95% LVR, because you’re paying more over time for a benefit you didn’t need.
The other variable is your exit strategy. If you plan to hold the property for two years, renovate and sell, the upfront saving might outweigh the rate premium. If you’re holding for a decade, the ongoing cost dominates. Most first home buyers and upgraders hold longer than they expect, so the long-term cost matters more than the initial saving.
Red flags and pressure points
Negative equity risk at 98% LVR is real. A 3% price fall, well within normal correction range, leaves you owing more than the property is worth. That doesn’t matter if you can service the loan and don’t need to sell, but it locks you into that lender’s rates until you rebuild equity. Refinancing with another lender typically requires 90% LVR or lower, meaning you’d need prices to rise or pay down principal to at least 10% equity before you can move.
Serviceability buffers also tighten at high LVR. Lenders assess your ability to service the loan at a rate 2.5-3% above the actual rate, so if the product rate is 6.5%, you’re assessed at 9-9.5%. That’s standard across all lenders, but non-banks sometimes apply stricter debt-to-income caps, particularly at 98% LVR, because their risk appetite has a harder ceiling than a major bank with a diversified book.
The lender’s funding model matters too. Non-banks rely on warehouse facilities and securitisation, which can tighten or reprice quickly if credit markets freeze. That doesn’t affect your existing loan (it’s a fixed contract), but it could limit the lender’s ability to offer competitive retention rates when your fixed term ends, leaving you stuck on a higher variable rate if you can’t refinance out.
What this means if you’re deciding right now
This product works for a narrow cohort: borrowers with strong, stable income and clean credit who are 2-3% short of a 95% LVR deposit and can’t wait another 12-18 months to save the difference. It’s less useful if you’re already close to 95% LVR, because the marginal benefit doesn’t justify the structural trade-offs.
If you’re considering it, model the total cost over at least five years, assume rates rise by 1%, and check whether you could still service the loan if your income dropped by 10-15% (job change, parental leave, reduced hours). Also verify the refinancing path, ask the broker what equity level you’d need to move to a major bank, and how long that would take at current prices and repayment rates.
For first home buyers using this to access properties above government scheme caps, the risk-reward skews toward risk unless you’re confident in both income stability and the local market’s price floor. For upgraders with equity in their current property but limited cash, it’s worth comparing against a top-up loan or line of credit secured by the existing property, which might offer more flexibility and lower rates.
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General info, not financial advice.
