Australia's largest LMI provider warns of unintended consequences of Home Guarantee scheme
When Helia reported its half-year results last month, it was an open book regarding the challenges it faces ahead.
Australia’s largest supplier of lenders mortgage insurance (LMI) faces uncertain times amid a large-scale expansion of the Labor Government's Home Guarantee Scheme (HGS).
Under the scheme, almost all first-home buyers in Australia will be able to buy a home with just a 5% deposit. Previously, to do so would require coughing up for expensive LMI, often costing in excess of $10,000.
However, with the government now prepared to underwrite the risk of low-deposit loans for virtually every first-home buyer in the country, Helia faces the prospect of losing a significant piece of the LMI market to government intervention.
The group candidly told shareholders it “is facing challenges on the outlook for new business, while the financial impact of the reduction in new business during FY26 will emerge gradually over time”.
"Helia is adapting to changing market conditions by creating a simpler and more efficient business, while seeking to rebuild LMI market share through opportunities with existing and new customers,” it added.
In new comments given to MPA by Helia interim chief executive Michael Cant, he gave his candid thoughts on the impact government intervention could have on the LMI market and house prices as a whole.
Unintended consequences
While Cant was unable to discuss potential changes to Helia’s business model, he explained how, when the HGS was first introduced, the government’s stated objective was to operate alongside a viable and sustainable private LMI market.
“A functioning high LVR market is best supported if public and private solutions such as LMI work together,” said Cant.
He expressed reservations the government’s handling of the HGS expansion.
“We support initiatives to increase home ownership in Australia, including first-home buyer government assistance,” said Young. “When the HGS was introduced, the Government’s objective was to operate alongside a viable and sustainable private LMI market.”
He warned that the removal of income thresholds and the significant increase in property price thresholds “gives tax-payer funded support to wealthier borrowers”.
Helia also believes the expansion of the HGS will have the unintended consequence of increasing demand from FHBs, thus leading to an increase in house prices.
A new report commissioned by the Insurance Council of Australia (ICA) and written by Lateral Economics does a good job of validating these concerns (though it is worth mentioning that the ICA is intended to represent Helia and other LMI providers).
“We estimate that the HGS expansion could increase property prices by 3.8% to 6.6% in the first year. If it is toward the upper end of this range, then the HGS expansion would wipe out the benefit from removing the cost of LMI for FHBs,” said the report.
The report estimates that homebuying demand will increase by between 20,600 and 39,100 buyers. “In specific market segments targeted by FHBs (typically homes below price caps), price impacts can be expected to be even greater – around 5.3% to 9.9%,” it added.
Furthermore, the report suggested that the HGS expansion will simply bring forward purchases for FHBs who were already planning to buy, rather than creating truly new buyers.
It continued: “In its current and proposed expanded forms, we have significant concerns that the HGS breaches the principles of good public policy. It does not address a genuine market failure, as there is an active LMI industry.”
Discussing the report’s findings, Cant said: “Ironically, the research found that the home buyer cohort most disadvantaged will be first-home buyers with lower incomes, whose savings from the scheme will more than likely be offset by the expected increase in house prices from the demand surge created by the HGS scheme.
“The limited protection provided by the scheme also means that lenders will be exposed to greater financial burdens during economic downturns, impacting the stability of the lending market and the ability for smaller lenders to compete.”
The HGS expansion comes into full effect on 1 October; house price data will be closely watched in the months following.
