Major change coming to mortgage rules for university grads
February 27, 2025
Have you paid off your student loan?
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.
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.
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.
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. Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
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
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
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
Get in touch to find out your borrowing power and discover if you’re home loan-ready today. Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
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