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Federal Treasurer Jim Chalmers has called on regulators to update their guidance to make it easier for holders of student debt to secure a home loan.
The Treasurer has today instructed financial regulators to update their guidance to make it easier for Australians with student debt to take out a mortgage and purchase a home.
Currently, HECS-HELP student debt is assessed similarly to any other debt, such as a personal loan or credit debt, when applying for a mortgage, with the repayments being factored into calculations when determining an individual’s borrowing capacity.
This process still occurs even though student debt does not need to be repaid if the holder is unemployed or earning an annual income below $54,435 in 2024–25 or $67,000 in 2025–26.
For this reason, the leader of the Senate economics references committee, Senator Andrew Bragg, last year launched an inquiry into the impact of Australia’s financial regulation on home ownership, where the prospect of lessening eligibility barriers such as student debt was mentioned.
The Senate’s final report based results of the inquiry showed that these conditions around student debt present another barrier obstructing first home buyers as outstanding repayments can drastically reduce the amount an individual can borrow.
Chalmers has now officially instructed both the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) to update their guidance around how student loans are assessed, and opened discussions with the major banks to discuss the changes.
“Currently, a barrier for young Australians to get into the housing market is the reluctance of banks to give them a mortgage,” Chalmers said.
“By unlocking more finance from the banks we’ll see more housing projects get off the ground more quickly.”
According to the government release, APRA will start consultation soon on the treatment of HELP debts in serviceability requirements and debt reporting.
ASIC has also reportedly confirmed that it will move to quickly implement changes to its guidance on the treatment of HELP debts, after a targeted consultation process.
“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,” Chalmers said.
“These are commonsense changes that will help more Australians into a home.”
Unlocking additional unit builds
The federal Treasurer also confirmed he asked the regulatory bodies to update and clarify its guidance to help unlock the construction of more units.
In his announcement, Chalmers said some lenders have indicated advice issued by APRA in 2017 – that finance for construction of new unit blocks should depend on all properties being pre-sold – has become a barrier to financing.
“The interpretation of this guidance as ‘100 per cent presales’ by some lenders has limited housing supply, as smaller developers often don’t have the capital to finance the start of construction without support from the banks,” he said.
“APRA has confirmed it will communicate to banks that while it expects banks to consider the extent of presales as part of prudent credit risk management, APRA does not expect 100 per cent presales.
“ASIC has confirmed it will move to quickly implement changes to its guidance on responsible lending laws.”
Master Builders Australia welcomed the review into regulations around lending practice for first home buyers and developers announced by Chalmers.
Master Builders Australia’s CEO, Denita Wawn, described the decision as a step in the right direction for all involved in the building and construction industry and supply chain.
“Higher Education Loan Program (HELP) repayments are unfairly weighted in serviceability assessments and restrict the ability for first home buyers to purchase a home,” Wawn said.
“This is a sensible first step in encouraging more investment into the industry and tackling housing supply and affordability challenges.”
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