The Insurance Council of Australia (ICA) on Sunday raised concerns that Labor’s proposal to expand the Home Guarantee Scheme could undermine the lenders’ mortgage insurance (LMI) market, with wider implications for the country’s financial stability.
The proposed scheme would guarantee all low-deposit home loans for first-time buyers. This could erode the market for private LMI providers by reducing demand for their services, which could render the market unsustainable, the ICA warned. A direct knock-on effect could also leave borrowers outside the government scheme with fewer options and potentially higher costs.
The Council has warned that shifting default risk from private insurers to the government could expose taxpayers to significant liabilities in a housing market downturn. The move, it said, could heighten systemic risk and destabilise financial markets during periods of economic stress.
“Labor’s announcement today contains significant risks to the stability of the financial sector and the ability of many Australians to access the home market,” commented ICA CEO Andrew Hall.
“LMI insurers have played an important role in the stability of the financial sector and the economy for 60 years and any policy that may eliminate this needs to be considered very carefully,” he said.
The ICA cautioned that the policy could further strain housing affordability by fuelling demand in an already supply-constrained market. Instead, it called on policymakers to prioritise targeted support for vulnerable groups—such as single-parent families and essential workers—as a more sustainable solution.
Hall said that the insurer sector would engage with Labor if it is returned on 3 May to raise significant concerns about the proposal.
The ICA also commented on a separate proposed plan by Labor which aims to support the delivery of 100,000 new homes. The industry body warned that the plan must ensure these homes are not built on floodplains or in areas exposed to high levels of extreme weather risk.
