QBE and Genworth say the Federal Government must ensure its first home buyers assistance scheme doesn’t crowd out private providers of lenders mortgage insurance (LMI).

“By introducing what could be considered to be a government competitor into the private sector, there is a risk that the scheme may displace a proportion of the LMI market, potentially impacting the ongoing viability of the private LMI market in Australia,” QBE says in a submission to a Senate inquiry on proposed legislation.

The First Home Loan Deposit Scheme, announced during the May election campaign, would guarantee 15% of a deposit and support up to 10,000 buyers a year who have a minimum 5% deposit and incomes of up to $125,000 for singles or $200,000 for couples. Further details are being finalised.

The National Housing Finance and Investment Corporation (NHFIC) would oversee the program from January.

Genworth proposes the legislation should include greater certainty, lower salary caps and criteria that prioritise regional first home buyers and smaller lenders to reduce the potential private market impact.

“NHFIC should not be empowered to become a potential taxpayer-subsidised competitor to existing viable private-capitalised LMI providers,” it says.

The program is intended to complement existing LMI, according to the Federal Government, but insurers say explanatory memorandum commitments that limit the scheme and recognise the importance of the private sector should be embedded in the legislation

“Without that, there is a possibility [that] subsequent governments could expand or alter the scheme without recognising the potential implications for the private LMI sector,” the Insurance Council of Australia says.