Struggling first home buyers and high-risk borrowers could be pushed out of the market if the West Australian government privatises its cheap loan scheme, an industry group says.

The Real Estate Institute of Western Australia (REIWA) has warned the state government not to heed calls from the Economic Regulation Authority (ERA) to privatise Keystart Home Loans.

The low deposit home loans scheme helps people who would otherwise not be granted finance by private lenders, pay for their mortgage.

REIWA president David Airey said Keystart, which was run by the Housing Department, was an excellent contributor to the housing market and should not be messed with.

“Its services are targeted at people on low and fixed incomes and it plays a vital role in helping people with affordability and access to finance,” Mr Airey said.

“This is not a role suited to the private sector.

“Specialised lending to people with modest means should remain a government service to help with a stable housing market and with social equity.”

The recommendation to privatise Keystart was part of the ERA’s report to the state government, which was tabled in parliament on Monday.

The report said Keystart was a major credit risk for the state government and there was no compelling reason why it should be publicly owned if it could be replicated in the private sector.