Major HECS win for Aussies wanting a home: 'Common sense'

Yahoo

11-02-2025

Australians with HECS debt may find it easier to buy a property after a "common sense" government push for student loans to be treated differently when applying for a mortgage. Those with debt have complained they feel held back when being assessed on their ability to repay their home loans, locking them out of the property market.
However, Treasurer Jim Chalmers has now written to the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), urging them to reassess their advice to banks and lenders on loan serviceability.
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The government said this would help more university-educated Australians - who on average take between seven and 10 years to pay off their student loan - buy a home at a time when "being a renter has never felt more insecure".
'We're tackling this housing challenge from every possible angle,'' Chalmers said.'These are commonsense clarifications that will help more Australians into a home.
'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.'
Serviceability is a person's ability to make repayments on their home loan.
Lenders will calculate serviceability by assessing their income, expenses and other factors like existing debt.
This also impacts a proposed monthly mortgage repayment.
Money Lounge mortgage broker Maddie Walton told Yahoo Finance a HECS debt essentially "doesn't matter" when calculating a mortgage repayment because people with student debt aren't required to pay it off until they reach a particular income threshold.
This is different to credit card debt, which requires payment regardless.
It doesn't matter if you have a $1,000 HECS debt or $150,000 HECS debt, it's considered the same in the eyes of the bank," she said.
Once you start earning more than $54,435 a year, a percentage of your wage will be deducted and redistributed to your loan.
It goes up 0.5 per cent for every $4,000 to $6,000 more you make per year. For example, if you earn between $66,621 and $70,618, 2.5 per cent of your salary goes to HECS.
The highest rate is 10 per cent and that's for people earning over $159,664 a year.
But if you aren't employed or earn under the threshold, then you don't have to pay it off.
Walton said the bank looks at how much is being sidelined from your salary each pay cycle to pay down your student debt when assessing how much borrowing power you have.
"The more you earn, the bigger percentage of your income has to go towards your [HECS] repayments," she told Yahoo Finance.
"So in turn, it reduces the disposable income you have to put towards your mortgage payment. The bank is always looking at your overall leftover funds after you've been paid and after your expenses."
If an Aussie with no HECS debt was earning $80,000 a year gross including super, they could borrow between $437,000 and $618,000, according to UNO Home Loans.
But if they had student loan debt, 4 per cent of their income would be redistributed to their HECS repayments.
That would reduce their borrowing power by around $17,000 to $23,600, depending on the lender's criteria.
Chalmers' message to APRA and ASIC has also been delivered to big banking executives and work is now underway to re-examine how a person with HECS debt will be assessed when applying for a mortgage.
Lenders may disregard HECS repayments when assessing a person's ability to repay a loan if they are expected to pay it off in the near term.
No indication has been provided on what "near term" may be.
A poll of more than 5,000 Yahoo Finance readers found 75 per cent were struggling with their current payments, and many worry they'll never be able to pay them off.
'For a generation of Australians, the prospect of home ownership feels too far away, and being a renter has never felt more insecure," Housing Minister Clare O'Neil said.
'Labor's working to secure your future by making it easier to buy, better to rent and with our big housing build."
The government has also successfully changed the way HECS is indexed each year to make it whatever is lower out of the wage price index and the consumer price index.
That alteration was able to wipe about $1,200 off an average $26,000 student loan.
Labor has also proposed a $16 billion plan to wipe everyone's HECS debts by 20 per cent.Sign in to access your portfolio