Updates to Student Debt & Home Loan Borrowing Rules Are Coming

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Updates to Student Debt & Home Loan Borrowing Rules Are Coming

The way banks assess student debt when approving home loans is set to change, making it easier for many Australians to buy their first home. Treasurer Jim Chalmers has asked regulators to update their rules on Higher Education Loan Program (HELP) debts, so they are no longer treated the same as other types of debt like personal loans or credit cards.

At the moment, when lenders assess a mortgage application, they factor in HELP debt as a regular financial commitment. This can significantly reduce a borrower’s borrowing power, even though HELP repayments are income-dependent and stop if the person earns below a certain threshold. Many first-home buyers have struggled with this, as their student debt reduces the amount they can borrow, making it harder to get into the property market.

How This Could Help First-Home Buyers

If lenders take a more flexible approach to HELP debts, it could mean that first-home buyers can borrow more money. Currently, student debt is included in the serviceability assessment, which determines how much a person can afford to repay on their mortgage. Since HELP debts don’t have set monthly repayments like a personal loan, treating them the same way has made it harder for buyers to qualify for a home loan.

Under the proposed changes, banks may be able to discount or reassess how they calculate HELP debt repayments, potentially increasing a borrower’s maximum loan amount. This could make a real difference for people who have a stable income but have been held back by their student debt when applying for a home loan.

The Mortgage and Finance Association of Australia (MFAA) has been pushing for this change, arguing that the current rules unfairly disadvantage first-home buyers. Since a large portion of mortgage applications go through brokers, we’ve seen firsthand how this issue affects buyers trying to get their foot in the door. This change could help more young Australians achieve homeownership sooner.

The Impact on Borrowing Capacity

For many borrowers, HELP debt reduces the amount they can borrow because lenders factor it into their serviceability calculations. If banks adjust their approach, this could increase borrowing capacity and make home loans more accessible. However, the exact impact will depend on how individual banks decide to implement the changes.

It’s important to remember that while these adjustments could help some buyers, they don’t eliminate HELP debt entirely. Borrowers will still need to make repayments once they earn above the income threshold, so they should consider the long-term impact on their finances.

Some industry experts have raised concerns that increasing borrowing power without addressing housing supply could drive up property prices. If more people can access higher loans, demand could increase, potentially pushing prices higher. While this change is designed to make home loans more accessible, it’s just one piece of the puzzle in improving housing affordability.

Changes to Unit Development Financing

In addition to HELP debt changes, the Treasurer has also asked regulators to clarify rules around financing for unit developments. Currently, some banks require 100% of units in a development to be pre-sold before approving finance. This has made it difficult for smaller developers to secure funding, slowing down the construction of new housing.

With the updated guidance, banks may be able to finance new apartment developments with fewer pre-sales. This could help increase housing supply, which is crucial for addressing affordability issues. More units being built means more housing options, particularly in high-demand areas.

What This Means for Buyers and Borrowers

For first-home buyers, these changes could mean a better chance of getting a home loan approved and potentially borrowing more. However, it’s still essential to ensure that any mortgage is affordable in the long run. Just because a bank may allow you to borrow more doesn’t always mean it’s the right financial decision.

For those looking to buy off-the-plan apartments, the changes to development finance could lead to more housing options becoming available. If more unit developments go ahead, it could provide additional choices for buyers, especially in urban areas where supply has been constrained.

What’s Next?

Regulators like the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) will now review and update their guidance. While this process could take some time, banks and lenders will likely adjust their policies once the new rules are in place.

If you’re a first-home buyer with HELP debt, now is a good time to start preparing. Speaking with a mortgage broker like Annette can help you understand how these changes might impact your borrowing power and what loan options may become available.

These updates are a step in the right direction for making homeownership more achievable for more Australians. However, they are just one part of the broader issue of housing affordability. As always, careful financial planning and expert advice are key to making the right decision when buying a home.