QBE says it will campaign for big banks to be granted capital relief on lenders’ mortgage insurance (LMI).

QBE LMI CEO Jenny Boddington says as loan sizes rise in the booming housing market, this is the biggest challenge facing the industry.

“We’re going to lobby hard to try to get that changed,” she said last week while launching the QBE Barometer on mortgage and property sentiment.

She says LMI is a “very capital-intensive industry… without LMI, a lot of people would not be able to borrow above 80% of the property value. So we’re actually helping people to buy houses.”

Approved loans have risen in value by about 20% in the past year, which is “certainly significant”, the report says.

The Australian Prudential Regulation Authority imposes extra capital requirements on large lenders when borrowers have deposits below 20%, even though banks switch the risk to an LMI provider.

QBE says it will also oppose any move to restrict lending to consumers with small deposits, as New Zealand has done.

“We don’t see anything wrong with lending at a high LVR [loan-to-value ratio],” Ms Boddington said. “We actually believe high LVR lending is a good thing, provided it has the right checks and balances.”

Loan sizes and LVRs are increasing, “particularly for first home buyers”, according to the QBE Barometer.

Mortgages for people who bought in the past year averaged $337,000, up from $215,000 previously, but the upper limit on what buyers are willing to borrow is now averaging nearly $400,000.

The current LVR averages 51% across all mortgage holders.

Last year New Zealand restricted the number of mortgages banks can write at LVRs above 80%, to 10% of new volume.

“New Zealand does not use LMI, so the banks are on their own when it comes to high LVR lending, and that makes for different choices for how it all works,” Ms Boddington said.

The report suggests property buyers are spooked by uncertainty over the federal budget, with 59% of respondents delaying buying until they see the budget’s impact on the economy.

Only 36% of respondents see the next year as the best time to buy, down from 42% last year.

This year’s QBE Barometer covers consumer attitudes to general insurance for the first time.

One in five mortgage borrowers do not have building insurance, and only 74% of first homeowners take it out, the research shows.