Government intervention in the first-home buyer market is set to have sweeping – and for some, damaging – consequences for Australia’s lenders’ mortgage insurance (LMI) sector.
From January 2026, Labor’s expansion of the First Home Guarantee scheme will remove both income caps and place limits, allowing all Australian first-home buyers to purchase with just a 5% deposit. The government will guarantee the remaining 15% of an 80% loan-to-value ratio, effectively eliminating the need for LMI for this borrower segment.
Previously, non-eligible first-home buyers faced LMI premiums in the tens of thousands to access a low-deposit loan. Now, industry stakeholders warn the change threatens not only Australia’s LMI providers but also competition and borrower choice across the mortgage market.
Helia, the largest provider, has assisted 1.2 million Australians into the housing market since 2010 and estimates the sector has paid around $2.9 billion in claims over that period, often supporting smaller lenders serving high-LVR borrowers. Without other insurance lines to buffer the impact, Helia is more exposed to market shifts than QBE.
In March 2025, the group disclosed that its largest client, Commonwealth Bank, was unlikely to renew its LMI contract beyond 31 December 2025. Then-CEO Pauline Blight-Johnston said she was “disappointed in this development” as the company’s shares fell 25% on the news.
Blight-Johnston stepped down in July, with Helia citing “changes to the Lenders’ Mortgage Insurance (LMI) Industry outlook and the customer portfolio of the company” as prompting a change in the scope of the CEO role. Another blow followed when ING opted to negotiate with an alternate provider.
Helia has warned that the Home Guarantee expansion “is expected to further reduce LMI industry premiums and make it more difficult for LMI providers to support lenders and borrowers,” adding that “a functioning high LVR market is best supported if public and private solutions such as LMI work together.”
Michael Lawrence, CEO of the Customer Owned Banking Association (COBA), fears the LMI market’s decline “could reduce smaller banks’ ability to lend to low-deposit customers who cannot access the government’s scheme… It’s an important part of the market for us.”
He noted that LMI is not only for first-home buyers. “If the LMI market disappears, then other low-deposit customers, such as those moving house or investors, will also be impacted,” Lawrence said. “That would be problematic for both customers and the banks that serve them.”
Greg Johnson, chief customer officer at Teachers Mutual Bank Limited (TMBL), stressed that government waivers exclude refinancers and investors. “Whilst large banks have increasingly looked to self insure, smaller banks generally don’t have the required scale and therefore a strong LMI market is important in ensuring the competition that smaller institutions provide is preserved,” he said.
QBE’s LMI segment has also been hit by these government initiatives. Its gross written premium dropped 51% in the first half of 2023 and 21% in the first half of 2024, each time citing first-home buyer schemes as a key factor.
Darren McLeod, head of broker enablement and partner relationships at Beyond Bank, which uses QBE, said: “QBE’s LMI business remains an important part of Beyond Bank’s offering in Australia. We have the benefit of being an exclusive partner of an insurer that is well diversified and has the strength and support of the QBE Group.”
If external LMI providers exit, market share in low-deposit lending could consolidate further into the hands of major banks with the resources to self insure – the opposite of what the Council of Financial Regulators has urged in calling for more competitive pressure from smaller lenders.
Amelia Pignone, owner of Sydney-based brokerage LendX, who stressed the importance of LMI, warned: “With LMI demand falling and insurers under pressure, the market risks tilting further in favour of the major banks. If external LMI providers exit, non-major lenders lose a key tool, limiting high-LVR lending and borrower choice. Brokers must stay sharp, adapt quickly, and continue driving competition.”
