Australian lenders’ mortgage insurers are operating in an “increasingly challenging” market, Fitch Ratings says in an industry report.

There are four LMI providers, with the two largest independent insurers holding more than 50% of total premium, according to the report.

Helia Group and QBE are the two leading providers of LMI products, which are designed to protect lenders if borrowers cannot repay their home loans.

“Fitch assesses the competitive profile of Australia’s mortgage insurance sector as increasingly challenging,” the report says. “The recent expansion of the government’s first homebuyer deposit scheme and the entrance of a new independent LMI provider in 2019 has intensified competitive pressure.”

The Commonwealth scheme has the government act as guarantor for a portion of a loan, allowing people to buy a property with as little as 5% deposit and without paying lenders’ mortgage insurance.

Most lenders require borrowers to have LMI if they do not have the required deposit, which is usually 20% of a property’s purchase price.

In 2019 Arch received regulatory approval to operate as an LMI provider and in 2021 it acquired Westpac’s LMI business for $350 million.