Home guarantee expansion sparks LMI concerns

The Insurance Council of Australia (ICA) says an expansion of the Federal Government’s home buyer support scheme has raised concerns over potential impacts on the lenders mortgage insurance (LMI) market.

“The insurance sector supports initiatives that improve access to home ownership, however it’s important that unintended consequences are carefully considered and that policy settings support the ongoing health of the successful LMI sector,” ICA CEO Andrew Hall said.

The Federal Budget, to be released tonight, will expand the Home Guarantee Scheme, which ensures part of an eligible buyer’s home loan is guaranteed by the government so the person can buy a property with a small deposit and without the need to pay LMI.

Under the expanded scheme the government will make available up to 50,000 places each year, including 35,000 guarantees allowing first-time buyers to purchase a property with a deposit as low as 5%.

The overall scheme will also introduce a regional home guarantee with 10,000 places each year, and it will expand a program that assists single parents to buy their first home or to re-enter the market with deposits as low as 2%.

ICA says the importance of LMI was reaffirmed last year by a National Housing Finance and Investment Corporation Act review, which recommended potential impacts on LMI sector viability should be considered if changes to the number of guarantees offered or eligibility criteria were contemplated.

Insurers warn that by displacing a proportion of the LMI market, the cost of providing the cover to borrowers who don’t access the government scheme could be potentially impacted.

“Without a strong and stable LMI sector, small and medium lenders will be at a disadvantage compared to larger lenders, impacting market competition,” ICA says. “This could disproportionately impact borrowers on lower-than-average incomes including first home buyers.”

The Federal Government has continued to expand the home-buyer support measures as property prices have soared and take-up of the program has been strong.

The First Home Loan Deposit Scheme began on January 1 2020 with a limit of 10,000 guarantees each financial year, while the family home guarantee was announced in last year’s budget.