Should the government subsidise LMI?

Founder of Lucca Property Eric Wong has suggested that the government should subsidise lenders mortgage insurance (LMI) to support home buyers to enter the property market.

Wong said that many renters across Australia were paying rent at the same value as the mortgage repayments, arguing that many tenants who are currently renting could afford a mortgage on the same property if they did not need to save for the 20 per cent deposit.

The real estate expert proposed that the government should subsidise lenders mortgage insurance so that prospective home buyers would be able to purchase a home with a smaller deposit.

Providing a Sydney-based example, Wong said “the impact of such a policy could be profound. For instance, consider a modern two-bedroom apartment in Parramatta, where rent can soar up to $1,000 per week.

“The purchase price for such a property often hovers below $700,000. If a tenant could secure a mortgage with a 5 per cent deposit instead of the standard 20 per cent, they could potentially enter the housing market much sooner."

The government is considering the introduction of the shared equity Help to Buy scheme that allows Australians to purchase a property with a minimum deposit of 2 per cent without paying lenders mortgage insurance (LMI).

When asked how his proposal would differ from the government’s Help to Buy scheme, Wong told Mortgage Business that he thought the government scheme would not only be costly but disrupt market dynamics.

He explained: “In my opinion, the proposed scheme will disrupt capital market dynamics in undesirable ways, costs way too much for the government and it will be interesting to see what happens when buyers want to refinance or sell with government actually owning a big stake of the property.”

Wong went on to note that the shared equity scheme would “make low-quality housing go up in [price]” and that the government should instead use the funds from the scheme to build affordable housing that is leased out to tenants.

He continued: “By subsidising LMI, it will cost a lot less and ensure young people are entering the market without distorting price too much."

Subsidising LMI could create a more inclusive housing market, according to Wong, allowing renters to convert to a “long-term investment”. He also said that a means-tested approach was necessary to ensure that the initiative would “genuinely aid those most in need”.

"By adapting current policies to the realities of today's economy, where rent is as burdensome as a mortgage, the government can create a pathway for more Australians to own their homes.

“This not only stabilises their financial future but also stimulates economic growth and community development. It's a win-win situation that deserves serious consideration from policymakers."

The announcement comes as the Albanese government launched consultations for the Help to Buy scheme to educate the public on the details of the scheme including eligibility criteria and participant obligations

[Related: Labor launches Help to Buy public consultation]