Major change coming to mortgage rules for university grads

Good news for the three million Australians who have a student debt. New rules are on the cards that could soon increase their borrowing power when applying for a home loan.

Heading off to uni can be a great investment in your skills and qualifications, potentially leading to a higher income over the course of your career.

The downside for many, though, is a lingering student debt.

More than just a balance to be repaid, a HECS/HELP debt can impact your ability to buy a home.

So, it’s great to hear that the federal government is pushing for lending rules to be loosened so that graduates have a better chance of getting started as home owners.

How a HECS/HELP debt can impact home-buying plans

Around 3 million Australians have an outstanding HECS/HELP balance.

HECS/HELP debts work differently from other types of debt – the balance doesn’t attract interest but it is indexed (typically upwards) each year in line with (the lower of) inflation or wages growth.

And unlike traditional debts, HECS/HELP repayments only kick in when graduates earn over $54,435 a year (2024-25 threshold), with a starting repayment rate of just 1% annually.

Sounds good, right? Well, here’s the thing.

University fees went up in recent years. And so did the indexation rate. Both of which have pushed up the average HECS/HELP debt.

This is hurting the borrowing power of many young university graduates who are trying to enter a property market that has also boomed in recent years.

That’s because under responsible lending rules, banks currently take a home buyer’s HECS/HELP debt into account – in much the same way as an outstanding credit card balance or car loan – when deciding how much they’ll lend.

Fortunately, that looks set to change.

New calls to loosen lending rules for HECS holders

Federal Treasurer Jim Chalmers recently called on financial regulator Australian Prudential Regulation Authority (APRA) to update its guidance to banks to make it easier for people with a HECS/HELP debt to take out a home loan by removing HECS/HELP debts from debt-to-income reporting.

Chalmers believes this would be a “commonsense” change, saying, “people with a HECS/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.”

Meanwhile, the Australian Banking Association has said the potential to unlock more credit for prospective home buyers could assist them in realising the dream of home ownership.

Long story short, the government and bank regulators, including both APRA and ASIC, appear to be in agreement on making these changes promptly.

Of course, we’ll keep you in the loop with any updates, as changes could mean a generous uptick in your home loan borrowing power.

What it could mean for you

Having a HECS/HELP debt, or any other student debt, shouldn’t discourage you from exploring your home loan options if you’re keen to buy.

Get in touch to find out your borrowing power and discover if you’re home loan-ready today.

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