Government intervention poses threat to LMI providers, brokers and non-major banks
Life is full of unintended consequences and government intervention in the first-home buyer market is no different.
As part of the Labor’s vote-winning expansion of the First Home Guarantee scheme, all Australian first-home buyers will soon be able to purchase a home with just a 5% deposit.
Unlike previous schemes, the expanded policy will, from January 2026, remove income caps and the limit on the number of places available under the First Home Guarantee scheme, making it universally accessible to all first-home buyers.
The government will guarantee the remaining 15% of an 80% LVR mortgage, effectively eliminating the need for Lenders Mortgage Insurance (LMI) among first-home buyers.
Previously, non-eligible first-home buyers have had to cough up for pricey LMI, which can run into the tens of thousands of dollars, in order to take out a low-deposit loan.
While the government’s ambitious plan to increase homeownership should be applauded, it poses an existential threat not just to Australia’s LMI providers, but to genuine competition and choice in the entire mortgage finance industry, according to industry experts.
LMI market in a nutshell
The Australian LMI market effectively comprises just two major entities – LMI specialist Helia and diversified insurance multinational QBE. Arch Capital Group also has a minimal presence in the Australian LMI market.
Australia’s largest provider of LMI coverage, Helia, has helped 1.2 million Australians into the housing market since 2010.
By Helia’s estimations, the LMI industry has paid around $2.9 billion in claims since 2010, including to smaller lenders that rely on LMI to provide finance to high-LVR borrowers.
As Australia’s largest LMI provider, Helia has a lot of skin in the game – unlike QBE, it doesn’t have a diversified insurance offering to fall back on.
This became evident in March 2025, when Helia announced that its biggest LMI client, Commonwealth Bank (CBA), was unlikely to renew its contract beyond the current expiry date of 31 December 2025.
Then-chief executive Pauline Blight-Johnston (pictured, left) said she was “disappointed in this development”. Helia’s shares crashed by a quarter on the announcement.
Blight-Johnston stepped down as chief executive in July, with the company, stating: “Following changes to the Lenders’ Mortgage Insurance (LMI) Industry outlook and the customer portfolio of the company, Ms Blight-Johnston and the Helia Board both believe that it is appropriate for a change in the scope of the CEO and Managing Director role.”
What that change in scope is, however, remains unclear.
Helia has since announced that another major client, ING, “has decided to proceed with negotiations with an alternate provider”. While that alternate provider was not named, there is a very small pool to choose from.
Helia shares took another beating following the ING announcement, although the stock is currently more than 12% higher year to date. However, it is clear that government LMI intervention is a growing concern for the group.
“The expansion of the Home Guarantee Scheme is expected to further reduce LMI industry premiums and make it more difficult for LMI providers to support lenders and borrowers,” Helia said in a statement to MPA.
Helia “believes that a functioning high LVR market is best supported if public and private solutions such as LMI work together”.
Helia obviously has a vested interest in maintaining a thriving LMI market, but it’s not the only one concerned about the government’s market-distorting activities.
Smaller lenders raise LMI concerns
Michael Lawrence (pictured, right), chief executive of the Customer Owned Banking Association (COBA), worries that an evaporation of the LMI market “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”.
Lawrence highlighted that it’s not just first-home buyers that use LMI. “If the LMI market disappears, then other low-deposit customers, such as those moving house or investors, will also be impacted,” he said. “That would be problematic for both customers and the banks that serve them.”
COBA is calling on the government to consider the impact its LMI waivers have on competition in the banking market.
“LMI is critically important to our members, as they’re not big enough to self insure, so we rely on the LMI market to move into those low-deposit loans,” Lawrence said.
One such member, Teachers Mutual Bank Limited (TMBL), believes the LMI market plays an important role in supporting choice and competition in the home loan market.
Echoing Lawrence’s comments, TMBL’s chief customer officer Greg Johnson (pictured, centre) highlighted that government LMI waivers are not available to refinancers and investors. He told MPA that retaining a decent LMI market is necessary for smaller lenders to operate in these fields.
“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,” said Johnson.
QBE profits take a beating
Helia is not alone in feeling the financial impact of the government’s LMI waivers.
While QBE enjoyed a rare spark of growth in its LMI segment in the first half of 2025, long-tail trends are worrying.
Back in 2023, QBE’s LMI gross written premiums declined 51% in the first half, “driven by reduced housing market activity and new government initiatives for first-home buyers”.
In the 2024 first half, QBE’s LMI gross written premium declined further by 21%; once again, “government initiatives for first-home buyers” was cited as a scapegoat.
Today, QBE is writing substantially less LMI business than it did in pre-Covid times. However, the group has reaffirmed its commitment to the LMI market.
“QBE remains committed to supporting Australians through the provision of Lenders’ Mortgage Insurance (LMI), which continues to be a core part of our offering in Australia,” it told MPA.
“LMI has played a critical role in the housing market for decades, helping millions of Australians access home ownership, supporting financial system stability, and fostering competition in lending. LMI should continue to be part of a sustainable and inclusive housing system,” QBE added.
Indeed, many smaller lenders rely heavily on QBE’s LMI services.
“QBE’s LMI business remains an important part of Beyond Bank’s offering in Australia,” Beyond Bank’s head of broker enablement and partner relationships Darren McLeod told MPA. “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.”
What’s at stake for brokers, borrowers and non-major banks?
For now, both Helia and QBE remain actively engaged in the LMI market, but what if they weren’t?
The loss of the LMI market could further concentrate low-deposit loan volumes into the banking giants that have the capacity to self insure. Ironically, this would come at a time when the Council of Financial Regulators is calling on the government to increase the competitive edge of smaller lenders.
That would mean less choice for brokers and their clients, something that brokers are becoming increasingly concerned about.
Read more: Would slashing first-home buyer incentives help housing crisis?
“With LMI demand falling and insurers under pressure, the market risks tilting further in favour of the major banks,” Amelia Pignone, owner of Sydney-based brokerage LendX, told MPA.
“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."
