What brokers need to know about major policy upheavals
Labor’s smashing victory in the Federal Election had dramatic consequences for the future of mortgage finance.
Issues like self-managed super fund (SMSF) tax reforms are on the agenda, while Labor’s pro-build policies, chiefly its ambition to build 1.2 million homes in five years, have received a full-fat mandate from the public.
The lender’s mortgage insurance (LMI) landscape is also set for a major shift under Prime Minister Anthony Albanese’s expansion of the Home Guarantee Scheme (HGS).
Albanese promised to extend the existing HGS program to allow all first-home buyers to purchase with a 5% deposit, with no income caps, therefore eliminating the need for LMI for the vast majority of home buyers.
But LMI will remain an important tool in mortgage finance in 2025 and beyond.
Read more: Labor has carte blanche for housing reform
Here is everything brokers need to know about LMI in 2025, with input from LMI experts including LMI provider Helia’s chief executive Pauline Blight-Johnston (pictured).
When is LMI used?
Brokers use LMI to help their clients enter the market sooner, particularly those unable to save the traditional 20% deposit.
By enabling loan-to-value ratio (LVR) above 80%, LMI allows borrowers – including first home buyers, investors, and refinancers – to secure a property with as little as a 5% deposit.
“Buying sooner with LMI in a rising market can help buyers avoid being priced out,” said Blight-Johnston. “Savings often can’t keep pace with surging property prices, and waiting too long can mean missing out on the home – or location – they really want.”
Blight-Johnston noted that while the HGS is limited to specific borrower profiles, LMI offers a broader solution. “It supports clients who may not qualify for government support due to income, property type or usage restrictions,” she said.
For brokers, this opens up a wider pool of potential borrowers. LMI can be especially powerful for clients looking to upgrade, refinance, or invest – segments often overlooked in affordability conversations.
“The equity gained from buying early typically outweighs the cost of the LMI fee over time,” said Blight-Johnston. “This fee, typically 1–2% of the loan value, can be capitalised and spread over the life of the loan.”
By leveraging LMI, brokers can deliver faster pathways to home ownership and help clients build wealth sooner.
A private solution
Labor’s expansion of the HGS will have the effect of shifting a substantial portion of mortgage default risk from the private sphere to the public sphere.
While this shift towards nationalisation has many supporters, Blight-Johnston warned of “displacing a functioning private-sector solution with a taxpayer-backed scheme that offers narrower protection”.
She contended that while LMI spreads risk and enables smaller lenders to compete in high-LVR lending, the HGS shifts liability to taxpayers and could make the system more fragile.
Helia’s data suggests that, historically, the HGS would have covered just 39% of losses claimed over the past 15 years. This underscores the HGS’ limitations as a substitute for LMI, in Blight-Johnston’s view.
She also raised concerns about proposed changes to income caps within the scheme, saying: “Removing or relaxing income caps provides a ‘free kick’ to those who could already afford to enter the market, increasing demand and driving up prices.
“We’ll have the biggest impact on home ownership if private sector tools are used by those who can, and government support is targeted at those who can’t.”
Common LMI misconceptions
There are two major misconceptions about LMI, according to Helia:
-
LMI is an additional cost or a cost to avoid: Typically, the LMI premium (1-2% of the total loan amount) is recouped in less than a year by house price appreciation. LMI is passed on by the lender to the borrower as a fee that is usually capitalised and paid over the loan’s life.
“Using LMI can allow buyers to enter the market sooner – potentially accruing wealth from capital gains in a rising market that outweighs the insurance premium over time,” Blight-Johnston said.
“Helia’s research shows that buyers who use LMI gained, on average, $107,000 in home equity within 5 years – after allowing for the cost of the LMI premium.”
-
LMI protects the borrower: LMI protects the lender, not the borrower, if the borrower defaults and the property sale doesn’t cover the loan.
Borrowers may still owe money if there's a shortfall after a property is sold. LMI gives the lender confidence to lend, and so provides benefit to the borrower by enabling them to buy a home sooner.
Views from the ICA
Echoing the views of LMI providers like Helia, the Insurance Council of Australia (ICA) warned that Labor’s plan to expand the HGS “contains significant risks to the stability of the financial sector and the ability of many Australians to access the home market.”
“By subsidising all first-home buyers, including those with a good income and savings in the bank, the purpose of the First Home Guarantee scheme is lost and a functioning private market may be severely and irreversibly impacted,” said ICA chief executive 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.”
Nationalising default risk will reduce the pool of LMI customers so significantly that the market may become unviable, warned the ICA. This could make it harder for those who are not included in the government scheme to access finance.
As for the lenders
One mid-tier lender told MPA the nationalisation of default risk will not impact volumes – at least not negatively. It will, however, substantially reduce the amount of first-home buyer loans written through its LMI provider.
The bank agreed with Helia’s stance that there is more inherent risk in the government scheme, as there are more caveats that come with coverage. The bank also noted that Labor’s expansion of the HGS will inevitably push up house prices.
A private lender interviewed by MPA said it made little to no difference in how it operates, but that any government scheme promoting first-home ownership is a good thing.
Recapping key HGS changes
- Universal 5% deposit: From January 2026, all first-home buyers will be eligible to purchase a home with just a 5% deposit without LMI. This expands the existing scheme by removing income and property price caps, allowing broader access across the country
- Government loan guarantee: The government will guarantee up to 15% of the home loan
- Increased property price caps: The property price limits for eligible homes under the scheme will be raised to reflect current market conditions. For instance, in Sydney, the cap will increase from $900,000 to $1.5 million
