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May 2025

Australia: Insurers warn govt's home guarantee plan jeopardises stability of the financial system

Source: Asia Insurance Review | May 2025

The Australian government’s plans to guarantee all low-deposit home loans for first-time home buyers would effectively nationalise a long-standing and effective financial product and may increase systemic financial risk, the Insurance Council of Australia (ICA) has said.
 
Lenders’ mortgage insurance (LMI) is a critical component in Australia’s housing market and has supported millions of Australians since it was introduced in 1965 by facilitating access to credit and home ownership, supporting the stability of the financial system, and underpinning competition in the lending market.
 
The ICA said, “Effective nationalisation of the LMI market for first home buyers as proposed today will have the effect of reducing the pool of LMI customers so significantly that the market may become unviable, making it harder for those who are not included in the government scheme to access finance.
 
“It will also place all the default risk on the government’s balance sheet rather than on private sector providers, potentially exposing taxpayers to billions of dollars in losses in the event of a housing downturn.”
 
The ICA added that the Home Guarantee Scheme should be more effectively targeted to those borrowers that are in greatest need of assistance that could not otherwise access home ownership – for example, single parent families, essential workers, and key workers in regional areas – rather than expanded to all first home buyers. A 
 
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