An expansion of the program guaranteeing low-deposit loans for first home buyers so they do not need lenders’ mortgage insurance will be brought forward to October, the federal government says.

Labor pledged before the election to widen the scheme, in a move insurers have warned will undermine the LMI market.

The changes, previously proposed for next year, mean all first home buyers who have saved a 5% deposit can apply, with income caps removed and property price limits increased.

“We want to help young people and first home buyers achieve the dream of home ownership sooner,” Prime Minister Anthony Albanese said.

“Bringing the start date of our 5% deposit scheme forward will do just that, getting more Australians into their own home quicker, while saving them money along the way.”

The government says access to the scheme can cut years off the time it takes to save for a deposit and save tens of thousands of dollars on LMI.

It says in the first year alone, first home buyers using the scheme are expected to avoid about $1.5 billion in mortgage insurance costs.

The government will also direct Housing Australia to promote the diversity of lenders that offer the scheme, including smaller, customer-owned and regional banks.

LMI provider Helia said when releasing its financial results last week that the existing first home buyers guarantee had already had a significant impact on the LMI industry.

“The company believes these policy changes are unlikely to sustainably improve levels of home ownership for [first home buyers] and introduce risks to government finances and the stability of the Australian financial sector,” it said.

Helia says a scheme expansion will have the unintended consequence of increasing demand from first home buyers leading to an increase in house prices.

"A small increase in house prices will offset any savings from not having to pay LMI premiums," Interim CEO Michael Cant told insuranceNEWS.com.au.

Helia says a functioning high loan-to-value ratio (LVR) market is best supported if public and private solutions such as LMI work together, and government schemes should be targeted at those who are most in need of public support into home ownership.

"The removal of income thresholds and very significant increase in property price thresholds gives tax-payer funded support to wealthier borrowers," Mr Cant said.

"The limited protection provided by the scheme also means that lenders will be exposed to greater financial burdens during economic downturns, impacting the stability of the lending market and the ability for smaller lenders to compete."