The housing market is expected to soften but lenders’ mortgage insurance (LMI) will not be affected, according to QBE.

The insurer has released its annual housing outlook, which predicts home prices up to 2019 will be flat in Sydney but fall slightly in Melbourne.

Unit prices will record greater declines due to oversupply.

But CEO Phil White told insuranceNEWS.com.au a number of factors will result in “a bit of growth in the top line” for LMI.

Crucially, fewer investors are entering the market due to banks tightening lending criteria.

Last financial year investors accounted for 44% of all residential loans, compared with 51% the previous year, the report says.

It is expected that owner-occupiers, including first-time buyers, will step in to fill the gap.

“That is good for our business because we support that segment,” Mr White said.

“We are all about helping Australians to own a home.”

The report shows that while the economy is weak, it is stable, and unemployment is predicted to stay relatively low.

“High unemployment can lead to a rise in defaults,” Mr White said. “We are expecting claims to trend mildly upwards but remain below long-term numbers.”

Lenders usually insist on securing LMI if homebuyers have less than a 20% deposit.

The buyer pays the premium, but the insurance covers the lender if payments cannot be made and there is a shortfall after the property has been sold.

Last month an ABC program called into question insurers’ practice of chasing defaulting homeowners through the courts to cover their losses. Mr White told insuranceNEWS.com.au QBE does not pursue recoveries from anyone who cannot pay.

“We have retrospectively looked at all our recoveries and are comfortable with them.”

Click here to download the full report.