The Albanese government is promising to make it easier for young Australians with student debts to buy a home by urging regulators to reassess the role of those debts for banks granting mortgages.
Student debt is often taken into consideration by lenders who consider the impact of the debt on income.
The federal government has now written to the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), with the regulators reviewing their loan guidance to banks.
Treasurer Jim Chalmers said the “common sense” clarifications would help more Australians into a home.
“People with a HELP debt should be treated fairly when they want to buy a house and we’re working with the regulators to make sure they are,” he said.
APRA will advise banks to exclude HECS repayments from serviceability assessments if they expect a borrower will shortly pay off their debt.
How are loan debts considered in mortgage claims?
In 2022, a letter from the APRA told banks that HECS-HELP debt should be included in debt-to-income ratios when reporting to the financial services regulator.
While it wasn’t a directive on how student debt should be assessed, experts said it encouraged banks to factor HECS-HELP debt as part of their overall lending strategies and has negatively impacted the borrowing capacity of young Australians.
It is understood that APRA will update the debt-to-income reporting definition so that HELP debts are no longer treated as debt for reporting purposes.
The shift would ensure student debt would no longer be treated like an unsecured loan, previously placing it in the same category as credit card or buy-now-pay-later debt.
Housing Minister Clare O’Neil hopes the change in advice to banks will make it easier for more Australians to secure their first home loan. Source: AAP / Mick Tsikas
Housing Minister Clare O’Neil said the changes will mean aspiring homeowners aren’t “overly impacted by student loans”.
“For a generation of Australians, the prospect of home ownership feels too far away, and being a renter has never felt more insecure,” she said.
“This is a common-sense measure that will make a material difference to first home buyers, giving them more borrowing power to get into their own home sooner.”
An update to APRA regulatory guidance is also expected to unlock the construction of more unit blocks.
It builds on a suite of measures targeting young Australians, with the upcoming federal election marking a significant shift in voter demographic, as gen Z and millennial voters now outnumber baby boomers in every state and territory for the first time.
Among Labor’s pledges is a by 1 June 2025, which would wipe around $16 billion in student debt for roughly three million Australians.
