Expansion of the Home Guarantee Scheme, as proposed by the Labor Party, may render the lenders mortgage insurance segment redundant, and raise doubts around the viability of mortgage-backed securities programs sponsored by smaller banks.
The Albanese government is planning to throw the Home Guarantee Scheme wide open if re-elected on May 3rd.
“A functioning private [LMI] market may be severely and irreversibly impacted” Andrew Hall, CEO of the Insurance Council of Australia said.
“Labor’s plans to guarantee all low-deposit home loans for first home buyers would effectively nationalise a long-standing and effective financial product and may increase systemic financial risk”, the Insurance Council of Australia said.
Amid its protestations, the Insurance Council of Australia may care to recall that Australia only has a lenders mortgage insurance industry thanks to the considered intervention of the Commonwealth government, in 1965, when it established the Housing Loans Insurance Corporation.
MGICA, a subsidiary of AMP, soon followed HLIC into the market with a private sector LMI offering.
The Howard government privatised HLIC in the late 1990s. Today this business forms the core of the ASX-listed Helia.
MGICA, these days, is the LMI arm of QBE Group.
“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” the Insurance Council said.
“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.
“Rather than expand the Home Guarantee Scheme and further increase demand-side pressure for housing, all Australian governments should be focused on meaningful supply-side solutions to housing constraints. 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.”