Home ownership will become easier for Australians burdened with student debt as banks no longer need to take HECS repayments into calculations when considering if a borrower can service a loan.
At the urging of Treasurer Jim Chalmers, the prudential regulator agreed to tell banks they can exclude HECS repayments from such assessments if the debt is going to be paid off in the short term.
HECS will also be excluded from debt-to-income calculations, further boosting eligibility.
Existing requirements were holding banks back from providing mortgages to some prospective borrowers due to the uncertainty around how to treat student loans, given repayment levels are contingent upon a borrower’s income.
The changes have the potential to unlock more credit for prospective homebuyers, Australian Banking Association chief executive Anna Bligh said.
‘Our industry welcomes this move and the clarity it will provide for banks when they are making lending assessments,’ she said.
‘Banks support responsible lending rules to protect borrowers and ensure they can repay their loans.
‘However, there is always merit in carefully considered updates to regulatory guidance that may help some Australians safely access more credit.’
Changes are underway to boost the borrowing power of young people who want to buy a home
The ‘commonsense clarifications’ would help more young Australians buy a home, Dr Chalmers said.
‘We need to recognise that student debt is different to other kinds of debt,’ he said.
‘We want to make sure that people with a student debt aren’t disadvantaged when it comes to getting a mortgage.’
Dr Chalmers could not say how many prospective homebuyers had been knocked back as a result of their HECS debts, but about three million Australians have outstanding HECS debt with an average balance of $22,000.
Opposition finance spokesperson Jane Hume described the change as a ‘late thought bubble’ from the treasurer.
‘Whether it’s going to make a real difference is yet to be seen,’ she told AAP.
The Coalition has its own policies to promote home ownership, including allowing first home buyers to access their superannuation balances to buy a property.
Universities Australia said the changes were a ‘no-brainer’.
‘No one should have to choose between owning a home and attending university,’ chief executive Luke Sheehy said.
The ‘no-brainer’ changes are about making it easier for young people to enter the housing market
‘This is a practical change that will ensure university graduates are treated fairly when they want to buy a house, as they should be.’
The Treasurer also asked the Australian Prudential Regulation Authority to clarify a misconception that hampered developers trying to access finance for apartment projects, which was limiting badly-needed housing supply.
Advice given by the regulator in 2017 was misconstrued by some lenders, who were not lending to builders unless they had pre-sold all properties in a planned development.
The regulator will stress to banks that, while pre-sales figures should be taken into account as part of prudent credit risk management, it does not expect 100 per cent of units to be pre-sold in order for them to approve a loan.
‘By unlocking more finance from the banks we’ll see more housing projects get off the ground more quickly,’ Dr Chalmers said.
Westpac CEO Anthony Miller said the lending changes would make it easier for builders to proceed with developments, which are sorely needed to address the country’s housing shortage and consequent high prices.
Property Council chief executive Mike Zorbas welcomed the change, saying Australians needed more apartment living options close to jobs, opportunities and transport.
